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Revisiting the shocking aspects of Asian monetary unification

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  • Genberg, Hans
  • Siklos, Pierre L.

Abstract

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.

Suggested Citation

  • Genberg, Hans & Siklos, Pierre L., 2010. "Revisiting the shocking aspects of Asian monetary unification," Journal of Asian Economics, Elsevier, vol. 21(5), pages 445-455, October.
  • Handle: RePEc:eee:asieco:v:21:y:2010:i:5:p:445-455
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    Cited by:

    1. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Regionalization vs. globalization," Working Papers 2013-002, Federal Reserve Bank of St. Louis.
    2. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, pages 189-206.
    3. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    4. Dufrénot, Gilles & Keddad, Benjamin, 2014. "Business cycles synchronization in East Asia: A Markov-switching approach," Economic Modelling, Elsevier, vol. 42(C), pages 186-197.
    5. Dong He & Wei Liao, 2012. "Asian Business Cycle Synchronization," Pacific Economic Review, Wiley Blackwell, vol. 17(1), pages 106-135, February.
    6. de Truchis, Gilles & Keddad, Benjamin, 2013. "Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 394-412.
    7. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    8. Bashar, Omar H.M.N., 2012. "The dynamics of aggregate demand and supply shocks in ASEAN countries," Journal of Asian Economics, Elsevier, pages 507-518.
    9. Hamilton-Hart, Natasha, 2011. "Distribution, Domestic Politics and Monetary Cooperation in East Asia," ADBI Working Papers 332, Asian Development Bank Institute.
    10. Hans Genberg, "undated". "Financial Integration in ASIA," Working Papers wp22, South East Asian Central Banks (SEACEN) Research and Training Centre.
    11. Jarko Fidrmuc & Iikka Korhonen, 2015. "Meta-Analysis of Chinese Business Cycle Correlation," Working Papers 062015, Hong Kong Institute for Monetary Research.

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