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Financial Integration in East Asia

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  • Hiroshi Fujiki

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: hiroshi.fujiki@boj.or.jp))

  • nd Akiko Terada-Hagiwara

    (Institute for Monetary and Economic Studies, Bank of Japan)

Abstract

This paper examines the degree of integration into world financial markets and the impacts on several key macroeconomic variables of selected East Asian economies, and draws policy implications. According to our analysis, the degrees of integration into world financial markets in those economies are increasing. Regarding the impacts of increasing integration into world financial markets on several macroeconomic variables, we find three results. First, casual two-way plots among macroeconomic variables do not support the theoretical prediction of reduction in relative consumption volatility. Second, the saving-investment correlation is higher than those of the euro area economies. Third, the degrees of smoothing of idiosyncratic shock by cross-holding of financial assets are lower than the euro area economies. These results suggest two policy implications. First, there is some room for improvement in welfare gains in those economies by means of further risk sharing. Second, holding all other conditions equal, the increasing integration into world financial markets alone is unlikely to provide a sound ground for a currency union in East Asia at this stage.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-12.

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Date of creation: Aug 2007
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Handle: RePEc:ime:imedps:07-e-12

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Keywords: Exchange rate regime; financial integration; risk sharing;

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Citations

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Cited by:
  1. Dong He & Wei Liao, 2011. "Asian Business Cycle Synchronisation," Working Papers, Hong Kong Institute for Monetary Research 062011, Hong Kong Institute for Monetary Research.
  2. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 07-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Mark M. Spiegel, 2008. "Financial globalization and monetary policy discipline," Working Paper Series, Federal Reserve Bank of San Francisco 2008-10, Federal Reserve Bank of San Francisco.
  4. Hong Bum Jang, 2011. "Financial Integration and Cooperation in East Asia: Assessment of Recent Developments and Their Implications," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 11-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
  5. Hideaki Hirata & Keisuke Otsu, 2011. "Accounting for the economic relationship between Japan and the Asian Tigers," Studies in Economics, Department of Economics, University of Kent 1120, Department of Economics, University of Kent.

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