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How Close is Asia to an Optimal Currency Area in Terms of Business Cycle Co-Movement?

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  • Alicia Garcia-Herrero

    (Chief Economist, Emerging Markets at BBVA and Visiting Professor at CEBIS (E-mail: alicia.garcia-herrero@bbva.com))

Abstract

The paper assesses how close Asian countries are to an Optimal Currency Area in terms of business cycle synchronization, with a focus on supply shock asymmetry. Based on a Structural VAR model, the importance of symmetric and asymmetric supply shocks is teasted for all ASEAN+3 countries. In addition, a spatial approach is used to analyze its impact on the whole Asian region and on pairs of Asian countries. The conclusion is that there is evidence of increasing symmetry of supply shocks although the situation differs largely on a country by country basis. Such finding would support a multi-speed process of monetary integration in the region.

Suggested Citation

  • Alicia Garcia-Herrero, 2014. "How Close is Asia to an Optimal Currency Area in Terms of Business Cycle Co-Movement?," IMES Discussion Paper Series 14-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:14-e-12
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    File URL: http://www.imes.boj.or.jp/research/papers/english/14-E-12.pdf
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    References listed on IDEAS

    as
    1. Ahmed, Shaghil & Park, Jae Ha, 1994. "Sources of macroeconomic fluctuations in small open economies," Journal of Macroeconomics, Elsevier, vol. 16(1), pages 1-36.
    2. Nephil Matangi Maskay, 1998. "A Comment on Empirical Estimation of Patterns of Shocks Utilizing the VAR Methodology on Developing Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 544-548.
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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