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Is a common currency area feasible for East Asia? A multivariate structural VAR approach

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  • Hsiufen Hsu

    (Osaka School of International Public Policy (OSIPP),Osaka University)

Abstract

In this paper the feasibility of forming a common currency area in East Asia is investigated. A three-variable SVAR model is employed to identify three types of shocks, i.e. global, regional, and domestic shocks. The empirical results do not provide strong support for forming a common currency area in this region because the symmetric "prevalent shock" cannot be defined. However, it is found that since the late 1990s the importance of asymmetric domestic shocks has declined while that of symmetric global and regional shocks has increased. Furthermore, East Asia is as symmetric as the Euro Area in terms of the correlation of global and regional shocks. The findings suggest that most East Asian economies have become symmetric in terms of economic shocks, and imply that a common currency area may become viable through deepening regional integration.

Suggested Citation

  • Hsiufen Hsu, 2009. "Is a common currency area feasible for East Asia? A multivariate structural VAR approach," OSIPP Discussion Paper 09E006, Osaka School of International Public Policy, Osaka University.
    • Handle: RePEc:osp:wpaper:09e006
    as

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    References listed on IDEAS

    as
    1. Charles Wyplosz, 2001. "A Monetary Union in Asia? Some European Lessons," RBA Annual Conference Volume (Discontinued), in: David Gruen & John Simon (ed.),Future Directions for Monetary Policies in East Asia, Reserve Bank of Australia.
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    5. Benassy-Quere, Agnes, 1999. "Optimal Pegs for East Asian Currencies," Journal of the Japanese and International Economies, Elsevier, vol. 13(1), pages 44-60, March.
    6. Paul De Grauwe & Zhaoyong Zhang, 2006. "Introduction: Monetary and Economic Integration in the East Asian Region," The World Economy, Wiley Blackwell, vol. 29(12), pages 1643-1647, December.
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    More about this item

    Keywords

    Common currency area; Monetary integration; OCA; SVAR; East Asia;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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