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Macroeconomic Interdependence in East Asia

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  • Nagayasu, Jun

Abstract

This paper analyzes macroeconomic interdependence among 10 Asian economies. In this connection, we decompose their macroeconomic activities (real GDP) into common and country-specific components using the Bai-Ng method (2004). Our results suggest first that both components are nonstationary and have permanent effects on their overall economy. Second, we find the relative importance of common factors in all countries in terms of their contribution to variations in real GDP. But evidence is also obtained of country-specific effects becoming increasingly important in countries like China in recent years. Therefore, if, for example, China is expected to grow at a fast pace in future, our findings imply that creation of a regional monetary union of these 10 countries needs to be held back until the Chinese economy has become more dominant in the region.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27129.

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Date of creation: 01 Apr 2010
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Handle: RePEc:pra:mprapa:27129

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Keywords: Asian economic integration; factor models; common and factors;

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