Revisiting the shocking aspects of Asian monetary unification
There is renewed interest in monetary cooperation in Asia. To the extent that such cooperation evolves to include discussions about co-ordination of exchange rate policies it is important to evaluate the desirability of such co-ordination. Such an evaluation involves in part an assessment of the cross-country correlation of macro-economic shocks, a criterion used in the past to assess the desirability of monetary unification. In revisiting this question this paper not only updates previous studies, but it makes two significant methodological contributions to the literature based on estimates of vector autoregression (VAR) models. Our empirical specification allows for the possibility that aggregate demand and aggregate supply shocks are contemporaneously correlated within each economy, on the one hand, and takes explicit account of third-country common influences on each economy, on the other. Our results show that previous findings in the literature do not always hold up when our modelling methodology is applied to the data. With respect to the implications for monetary unification our results do not clearly identify a group of countries for which shocks are unambiguously highly correlated and which therefore would be able to perform well with a common monetary policy. The correlation structure differs between aggregate demand shocks and aggregate supply shocks.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Moneta, Fabio & Rüffer, Rasmus, 2006. "Business cycle synchronisation in East Asia," Working Paper Series 0671, European Central Bank.
- Carsten Hefeker & Andreas Nabor, 2005. "China's role in East-Asian monetary integration," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 157-166.
- John Williamson, 2005. "A Currency Basket for East Asia, Not Just China," Policy Briefs PB05-01, Peterson Institute for International Economics.
- Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000.
"On Regional Monetary Arrangements For ASEAN,"
CEPR Discussion Papers
2411, C.E.P.R. Discussion Papers.
- Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000. "On Regional Monetary Arrangements for ASEAN," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 121-148, June.
- Cover, James Peery & Enders, Walter & Hueng, C. James, 2006. "Using the Aggregate Demand-Aggregate Supply Model to Identify Structural Demand-Side and Supply-Side Shocks: Results Using a Bivariate VAR," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 777-790, April.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, 1.
- Michael G. Plummer & Ganeshan Wignaraja, 2006.
"The Post-Crisis Sequencing of Economic Integration in Asia: Trade as a Complement to a Monetary Future,"
CEPII research center, issue 107, pages 59-85.
- Plummer, Michael G. & Wignaraja, Ganeshan, 2007. "The Post-Crisis Sequencing of Economic Integration in Asia: Trade as a Complement to a Monetary Future," Working Papers on Regional Economic Integration 9, Asian Development Bank.
- Michael G. Plummer, 2007. "The Post-Crisis Sequencing of Economic Integration in Asia: Trade as a Complement to a Monetary Future," Working Paper Series 12-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
- Richard Pomfret, 2004.
"Sequencing Trade and Monetary Integration: Issues and Applications to Asia,"
School of Economics Working Papers
2004-14, University of Adelaide, School of Economics.
- Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 105-124, February.
- Hans Genberg & Dong He, 2007. "Monetary and Financial Cooperation among Central Banks in East Asia and the Pacific," Working Papers 0715, Hong Kong Monetary Authority.
- Masahiro Kawai, 2008. "Toward A Regional Exchange Rate Regime In East Asia," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 83-103, 02.
- Walter Enders & Stan Hurn, 2007. "Identifying aggregate demand and supply shocks in a small open economy," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 411-429, July.
- Obiyathulla Ismath Bacha, 2008. "A common currency area for ASEAN? issues and feasibility," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 515-529.
- Souki, Kaouthar, 2008. "Assessing the effects of U.S. shocks on the Canadian economy using alternative identification methods," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 193-213, August.
- Sunghyun Henry Kim & M. Ayhan Kose & Michael G. Plummer, 2003. "Dynamics of Business Cycles in Asia: Differences and Similarities," Review of Development Economics, Wiley Blackwell, vol. 7(3), pages 462-477, 08.
- Dées, Stéphane & Vansteenkiste, Isabel, 2007. "The transmission of US cyclical developments to the rest of the world," Working Paper Series 0798, European Central Bank.
- PierreL. Siklos & Yang Zhang, 2010.
"Identifying The Shocks Driving Inflation In China,"
Pacific Economic Review,
Wiley Blackwell, vol. 15(2), pages 204-223, 05.
- Zhaoyong Zhang & Kiyotaka Sato & Michael McAleer, 2004. "Is a monetary union feasible for East Asia?," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1031-1043.
- Zivot, Eric & Andrews, Donald W K, 1992.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 251-70, July.
- Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
- Tom Doan, . "ZIVOT: RATS procedure to perform Zivot-Andrews Unit Root Test," Statistical Software Components RTS00236, Boston College Department of Economics.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
- Tom Doan, . "BQDODRAWS: RATS procedure to implement Monte Carlo draws from a VAR with Blanchard-Quah factorization," Statistical Software Components RTS00030, Boston College Department of Economics.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
- Tom Doan, . "RATS programs to replicate Blanchard and Quah AER 1989," Statistical Software Components RTZ00017, Boston College Department of Economics.
- Ben S. Bernanke, 1986.
"Alternative Explanations of the Money-Income Correlation,"
NBER Working Papers
1842, National Bureau of Economic Research, Inc.
- Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
- Ramikishen Rajan, 2002. "Exchange Rate Policy Options for Post-crisis Southeast Asia: Is There a Case for Currency Baskets?," The World Economy, Wiley Blackwell, vol. 25(1), pages 137-163, 01.
- Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, 1.
When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:21:y:2010:i:5:p:445-455. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.