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Business Cycle Correlation and Output Linkages among the Asia Pacific Economies

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  • Chan, Tze-Haw
  • Khong, Wye Leong Roy

Abstract

Currency crises and financial instability in the 1990s have increased the needs of regional cooperation, hence leading to the proposition of optimal currency area (OCA). But only if shocks are symmetric, the cost of relinquish the flexible monetary policy is to be outweighed by the benefits of forming OCA. To tackle the issue, this paper studies the extent of business cycle correlation and output linkages among fifteen Asia Pacific economies during 1961-2004. The real outputs series which sourced from the Penn World Data were estimated in standardized international dollars to construct business cycles based on the Christiano-Fitzgerald (2003)’s asymmetric band-pass filtering method. On the whole, the selected APEC members (especially ASEANs and NIEs) have achieved some important degree of business cycle co-fluctuations since the 1990s and further enhanced after 1997, most possibly attributed to the improved intra-trading and cross-boarder investments. For the US-Japan-ASEAN5 series, a dynamic analysis was conducted using the Autoregressive Distributed Log bounds test and the Unrestricted Error Correction Model (UECM) representation advanced in Pesaran et al. (2002). Nonetheless, the idiosyncratic and common shocks in ASEAN economies are more identical to the Japanese experience rather than the US’s. The overall finding has signified the brighter likelihood of economic cooperation and regional currency arrangements among APEC members.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11305.

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Date of creation: 30 Dec 2007
Date of revision: 24 Oct 2008
Handle: RePEc:pra:mprapa:11305

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Keywords: Business Cycle Correlation; Output linkages; OCA; Asia Pacific; Band-pass Filtering; UECM;

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Cited by:
  1. Ajay Shah & Ila Patnaik & Shruthi Jayaram, 2009. "Examining the Decoupling Hypothesis for India," Working Papers id:2119, eSocialSciences.

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