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An Output Perspective on a Northeast Asia Currency Union

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  • Yin-Wong Cheung
  • Jude Yuen

Abstract

The prospect of creating a currency union consisting of China, Japan, and Korea is evaluated using output data. After a brief discussion on the interactions between the three countries, the study investigates whether these three countries have common synchronous business cycles, which are perceived as one of the preconditions of a currency union. Then, we assess the potential costs of giving up monetary policy autonomy to form a currency union. It is found that the three national output series tend to move together in the long run and share common business cycles. While the output loss estimates depend on assumptions used to generate shocks, they tend to be small. However, there are potential conflicts between these countries on the choice of the policy target of the common monetary authorities.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1250.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1250

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Keywords: common stochastic trend; business cycles; output losses; exchange rate regime; Asian economies;

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Citations

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Cited by:
  1. Peter B. Kenen & Ellen E. Meade, 2006. "Monetary integration in East Asia," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Nannette Lindenberg & Frank Westermann, 2010. "How Strong is the Case for Dollarization in Central America? An Empirical Analysis of Business Cycles, Credit Market Imperfections and the Exchange Rate," Working Papers 83, Institute of Empirical Economic Research.
  3. Nannette Lindenberg & Frank Westermann, 2009. "How Strong is the Case for Dollarization in Costa Rica? A Note on the Business Cycle Comovements with the United States," Working Papers 79, Institute of Empirical Economic Research.
  4. Jeon, Bang Nam & Zhang, Hongfang, 2007. "A currency union or an exchange rate union: evidence from Northeast Asia," MPRA Paper 36622, University Library of Munich, Germany, revised 01 Feb 2012.

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