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Feasibility of Currency Unions in Asia - An Assessment Using Generalized Purchasing Power Parity -

Author

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  • Hiroyuki Taguchi

    (Vice President, Policy Research Institute, Ministry of Finance)

Abstract

This paper examined the economic feasibility of forming a regional currency block in Asia, by adopting a generalized purchasing power parity (G-PPP) approach to identify the existence of common trends in real exchange rates among a group of countries. To be specific, we conducted both bilateral and multilateral co-integration estimation on real exchange rates with the samples of 17 Asian countries covering south Asia during the post- 1997-98 crisis period. Our findings are as follows; First, Japan, China and Korea are shown to be little candidate for any optimum currency areas. Second, ASEAN and south Asia, as a group, passed the G-PPP condition. Third, some co-integrating interactions were interestingly found between ASEAN and south Asian members. Our strategic implication emphasizes on the significance of a smaller local subgroup multi-speed strategy toward a long-run goal of currency union in Asia.

Suggested Citation

  • Hiroyuki Taguchi, 2010. "Feasibility of Currency Unions in Asia - An Assessment Using Generalized Purchasing Power Parity -," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(5), pages 859-872, June.
  • Handle: RePEc:mof:journl:ppr011e
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    File URL: http://www.mof.go.jp/english/pri/publication/pp_review/ppr011/ppr011e.pdf
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    References listed on IDEAS

    as
    1. Enders, Walter & Hurn, Stan, 1994. "Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 179-190, June.
    2. Changmo AHN & Hong-Bum KIM & Dongkoo CHANG, 2006. "Is East Asia Fit For An Optimum Currency Area? An Assessment Of The Economic Feasibility Of A Higher Degree Of Monetary Cooperation In East Asia," The Developing Economies, Institute of Developing Economies, vol. 44(3), pages 288-305.
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    Cited by:

    1. Ishaq Maryam & Atiq Ur Rehman Muhammad, 2013. "Surmounting the Individual: Establishing a Common Currency in Asia – A Case Study of East Asian Economies," Global Economy Journal, De Gruyter, vol. 13(1), pages 63-88, January.

    More about this item

    Keywords

    optimum currency area; generalized purchasing power parity; co-integrating relationship; ASEAN; south Asia;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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