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Is a common currency area feasible for East Asia? A multivariate structural VAR approach

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Author Info
Hsiufen Hsu (Osaka School of International Public Policy (OSIPP),Osaka University)
Abstract

In this paper the feasibility of forming a common currency area in East Asia is investigated. A three-variable SVAR model is employed to identify three types of shocks, i.e. global, regional, and domestic shocks. The empirical results do not provide strong support for forming a common currency area in this region because the symmetric "prevalent shock" cannot be defined. However, it is found that since the late 1990s the importance of asymmetric domestic shocks has declined while that of symmetric global and regional shocks has increased. Furthermore, East Asia is as symmetric as the Euro Area in terms of the correlation of global and regional shocks. The findings suggest that most East Asian economies have become symmetric in terms of economic shocks, and imply that a common currency area may become viable through deepening regional integration.

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File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2009/DP2009E006.pdf
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Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number 09E006.

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Length: 24 pages
Date of creation: Jul 2009
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Handle: RePEc:osp:wpaper:09e006

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Related research
Keywords: Common currency area; Monetary integration; OCA; SVAR; East Asia;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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  1. Huang, Ying & Guo, Feng, 2006. "Is currency union a feasible option in East Asia?: A multivariate structural VAR approach," Research in International Business and Finance, Elsevier, vol. 20(1), pages 77-94, March. [Downloadable!] (restricted)
  2. Marcelo Sánchez, 2005. "Is time ripe for a currency union in emerging East Asia? The role of monetary stabilisation," Working Paper Series 567, European Central Bank. [Downloadable!]
  3. Kwack, Sung Yeung, 2004. "An optimum currency area in East Asia: feasibility, coordination, and leadership role," Journal of Asian Economics, Elsevier, vol. 15(1), pages 153-169, February. [Downloadable!] (restricted)
  4. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  5. Chow, Hwee Kwan & Kim, Yoonbai, 2003. "A common currency peg in East Asia? Perspectives from Western Europe," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 331-350, September. [Downloadable!] (restricted)
  6. Paul De Grauwe & Zhaoyong Zhang, 2006. "Introduction: Monetary and Economic Integration in the East Asian Region," The World Economy, Blackwell Publishing, vol. 29(12), pages 1643-1647, December. [Downloadable!] (restricted)
  7. Benassy-Quere, Agnes, 1999. "Optimal Pegs for East Asian Currencies," Journal of the Japanese and International Economies, Elsevier, vol. 13(1), pages 44-60, March. [Downloadable!] (restricted)
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