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A common currency area for ASEAN? issues and feasibility

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  • Obiyathulla Ismath Bacha

Abstract

This article examines the feasibility of a Common Currency Area (CCA) for ASEAN and the broader ASEAN +5. Using macro-economic data for 14 East Asian countries over the 34-year period 1970-2003, this article addresses whether a Euro style CCA would be well suited for these countries. Issues such as the costs and benefits involved and which countries may be best suited are examined. Previous literature on currency unions have identified synchronous business cycles, similarity in inflation levels and policy congruence to be among essential preconditions. A Vector Autoregression Model and Correlation Analysis is used to examine common linkages among the 14 sample countries. Impulse response functions and variance decomposition is used to identify potential candidates among the 14 countries. The results show an absence of broad-based common linkages. Instead, several paired clusters are identified as potential candidates. The results imply that while a region-wide CCA may not now be feasible, a strategy of beginning with paired clusters and then expanding may be a logical progression if a currency union is a desired objective.

Suggested Citation

  • Obiyathulla Ismath Bacha, 2008. "A common currency area for ASEAN? issues and feasibility," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 515-529.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:4:p:515-529
    DOI: 10.1080/00036840600675653
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    Citations

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    Cited by:

    1. Lee, Grace H.Y. & Koh, Sharon G.M., 2012. "The prospects of a monetary union in East Asia," Economic Modelling, Elsevier, vol. 29(2), pages 96-102.
    2. Fidrmuc, Jarko & Korhonen, Iikka, 2015. "Meta-analysis of Chinese business cycle correlation," BOFIT Discussion Papers 6/2015, Bank of Finland, Institute for Economies in Transition.
    3. Enzo Weber, 2012. "Regional and outward economic integration in South-East Asia," Applied Economics, Taylor & Francis Journals, vol. 44(10), pages 1271-1283, April.
    4. Lee, Chin & M., Azali, 2013. "Financial Integration among ASEAN+3 Countries: Evidence from Exchange Rates," MPRA Paper 58162, University Library of Munich, Germany.
    5. Lee, Grace H.Y., 2011. "Gold dinar for the Islamic countries?," Economic Modelling, Elsevier, vol. 28(4), pages 1573-1586, July.
    6. Shahriar Kabir & Ruhul Salim, 2016. "Can A Common Currency Induce Intra-Regional Trade? The Southeast Asian Perspective," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(3), pages 218-234, November.
    7. Mustafa Caglayan & Omar S. Dahi & Firat Demir, 2013. "EsTrade Flows, Exchange Rate Uncertainty, and Financial Depth: Evidence from 28 Emerging Countries," Southern Economic Journal, Southern Economic Association, vol. 79(4), pages 905-927, April.
    8. Lee, Grace H.Y. & Azali, M., 2012. "Is East Asia an optimum currency area?," Economic Modelling, Elsevier, vol. 29(2), pages 87-95.
    9. 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.

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