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To be or not to be: An optimum currency area for South Asia?

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  • Regmi, Krishna
  • Nikolsko-Rzhevskyy, Alex
  • Thornton, Robert

Abstract

This paper empirically investigates whether South Asian countries constitute an optimum currency area (OCA) by applying a structural vector auto-regression (SVAR) model to trace global, regional, and domestic shocks. Variance decomposition shows that domestic shocks dominate regional and global shocks, which contrasts with our findings for the European Union countries, used as a basis for comparison. We conclude that at the present time the South Asian region as a whole does not meet the prerequisite conditions of an OCA. The loss of an autonomous monetary instrument can outweigh the benefits of a common currency.

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  • Regmi, Krishna & Nikolsko-Rzhevskyy, Alex & Thornton, Robert, 2015. "To be or not to be: An optimum currency area for South Asia?," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 930-944.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:6:p:930-944
    DOI: 10.1016/j.jpolmod.2015.09.005
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    3. Mohsen Khezri & Muhamed Zulkhibri & Reza Ghazal, 2019. "Regional Integration, Monetary Cooperation: Evidence from Global VAR Models for the Member States of the Shanghai Cooperation Organization," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 11(1-2), pages 65-79, January.
    4. León Padilla & Ángel Rodriguez García-Brazales, 2021. "Can South America form an optimal monetary area? A structural vector autoregression analysis," International Economics and Economic Policy, Springer, vol. 18(2), pages 309-329, May.
    5. Kanfitine Lare-Lantone & Emmanuel Anoruo, 2022. "West African Monetary Union and Colonial Economic Ties," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(3), pages 323-362.
    6. Konopczak, Karolina & Welfe, Aleksander, 2017. "Convergence-driven inflation and the channels of its absorption," Journal of Policy Modeling, Elsevier, vol. 39(6), pages 1019-1034.

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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