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Optimum currency area in South Asia: A state space approach

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  • Banik, Nilanjan
  • Biswas, Basudeb
  • Criddle, Keith R.

Abstract

This paper is an empirical investigation of the feasibility of an optimum currency area (OCA) in South Asia. Countries are good candidates for forming an OCA if their economies are similarly structured and if their economies share similar responses to exogenous shocks. That is, among other characteristics, good candidates for forming an OCA will share a coincident pattern of economic booms and recessions. We use a state space time series model with a stochastic trend to explore the extent to which the Indices of Industrial Production for South Asian nations share common dynamic responses to exogenous shocks.

Suggested Citation

  • Banik, Nilanjan & Biswas, Basudeb & Criddle, Keith R., 2009. "Optimum currency area in South Asia: A state space approach," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 502-510, June.
    • Handle: RePEc:eee:reveco:v:18:y:2009:i:3:p:502-510
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    References listed on IDEAS

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    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. 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 655-673, September.
    3. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-1089, November.
    4. Mills, Terence C & Holmes, Mark J, 1999. "Common Trends and Cycles in European Industrial Production: Exchange Rate Regimes and Economic Convergence," Manchester School, University of Manchester, vol. 67(4), pages 557-587, September.
    5. Shinji Takagi, 1999. "The Yen and Its East Asian Neighbors 1980-1995: Cooperation or Competition?," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, pages 185-210, National Bureau of Economic Research, Inc.
    6. Atish R. Ghosh & Holger C. Wolf, 1994. "How Many Monies? A Genetic Approach to Finding Optimum Currency Areas," NBER Working Papers 4805, National Bureau of Economic Research, Inc.
    7. Cerchi, Marlene & Havenner, Arthur, 1988. "Cointegration and stock prices : The random walk on wall street revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 333-346.
    8. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    9. Michael Artis & Marion Kohler & Jacques Mélitz, 1998. "Trade and the Number of OCAs in the World," Open Economies Review, Springer, vol. 9(1), pages 537-568, January.
    10. Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January.
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    Cited by:

    1. Nilanjan Banik & John Gilbert, 2010. "Regional Integration and Trade Costs in South Asia," Chapters, in: Douglas H. Brooks & Susan F. Stone (ed.),Trade Facilitation and Regional Cooperation in Asia, chapter 4, Edward Elgar Publishing.
    2. Kim, Won Joong & Hammoudeh, Shawkat, 2013. "Impacts of global and domestic shocks on inflation and economic growth for actual and potential GCC member countries," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 298-317.
    3. Md. Abdur Rahman Forhad, 2014. "How many currencies in Saarc countries? a multivariate structural var approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(4), pages 265-286, October-D.

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