In this paper, we empirically analyze how increased exchange rate volatility influences the volume of trade between Japan and Korea and between these two countries and the United States. Out results strongly suggest that the increased exchange rate volatility is negatively related to the trade volume between Japan and Korea and the U.S., Japan and Korea. Despite the evidence that exchange rate stability promotes trade, the discussions on the Japan-Korea FTA are proceeding without emphasis on exchange rate coordination. While the EU integration process was fortified initially by exchange rate coordination and later by the introduction of a monetary union, NAFTA presents a contrasting case of pure trade integration without monetary cooperation. The crucial elements in EU that facilitated monetary cooperation were: a large trade share among involved countries and strong political will from member countries. As the Japan-Korea trade integration process, at least in isolation, lacks both elements, it is not likely that any explicit monetary or exchange rate coordination will naturally rise.
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Publisher Info
Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number
359.
Length: 64 pages Date of creation: Oct 2003 Date of revision: Handle: RePEc:eab:tradew:359
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