Please Wait! Your file will start to download within 10 seconds automatically. Otherwise click here Download

On The East Asian Mo Netary Unio N: An “Var” Analysis

Author(s)

Marco Mele ,

Download Full PDF Pages: 1 -9 | Views: 382 | Downloads: 125 | DOI: 10.5281/zenodo.3386654

Volume 1 - August 2012 (08)

Abstract

The Asian financial crisis of 1997, progressive economic integration into the world system of countries such as China and India, the introduction of the euro in the European continent and the most recent financial crisis of "subprime" mortgages, collectively constitute the factors that have contributed over the years to search more and more regulated economic relations between the countries of South-East Asia. The Asian financial crisis of 1997, progressive economic integration into the world system of countries such as China and India, the introduction of the euro in the European continent and the most recent financial crisis of "subprime" mortgages, collectively constitute the factors that have contributed over the years to search more and more regulated economic relations between the countries of SouthEast Asia. In fact, this kind of trade regionalism, would be enriched and concluded when, following the example of the European Monetary Union, the Pacific Rim countries were united under a single currency (although this situation would result in costs such as-the most important-the reduction of monetary sovereignty in favor of a supra-national organism). The theory that studies by the end of the sixties the costs and benefits of a monetary union is that developed by Robert Mundell-later expanded to other contributions-the "optimum currency areas”. It identifies how the cost for future members of the monetary union is bigger than the increase in the risk of asymmetric shocks and less when they are exposed to the possibility of being subjected to the same or similar shock. The asymmetry is reduced by the degree of trade integration between countries (McKinnon), the level of mobility of labor and possible systems of intra-regional fiscal transfers. This study, examining a specific area of South East Asia, will focus on the symmetry of the structural shocks considering it as a precondition for forming an OCA. In particular, we will carry out a VAR to several variables in order to identify, through the function "impulse-response", the time required to a hypothetical asymmetric shock to be distributed among all the countries in the area.

Keywords

Optimum Currency Area, Trade integration, Gravity Equation, S-VAR. 

References

  1. Alesina, Alberto and Robert J. Barro (2000), “Currency Unions”, NBER Working Paper 7927.
  2.  Bekaert, G., and Harvey, C.(1995), Time-varying world market integration, J.Finance 50, 403-444
  3. Baek, Seung-Gwan and Chi-Young Song (2001), “Is Currency Union a Feasible Option in East
  4.  Asia?”, unpublished manuscript.  Bayoumi T and B. Eichengreen (1994), ‘One Money or Many? Analyzing the Prospects of Monetary
  5. Unification in Various Parts of the World’, Princeton Studies in International Finance No 76.  Bayoumi, T and B. Eichengreen (1997), “Ever Close to Heaven? An Optimum- Currency-Area Index
  6. for European Countries, European Economic Review 41, 761-770.  Bayoumi, T. and P. Mauro (1999), “The Suitability of ASEAN for a Regional Currency
  7. Arrangement,” IMF WP/99/162.  Bayoumi, Tamim, Barry Eichengreen and Paolo Mauro (2000), “On Regional Monetary
  8.  Arrangements for ASEAN”, Journal of the Japanese and International Economics, 14, 121-148.  Blanchard, Olivier J., and Quah, Danny (1989), “The Dynamic Effects of Aggregate Demand and
  9. Supply Disturbances,” American Economic Review, 655-673.  Canova, Fabio and Harris Dellas (1993), “Trade Interdependence and the International Business
  10. Cycle,” Journal of International Economics, 34, 23-47. Cheng, Y., and Mak, S. (1992), The international transmission of stock market fluctuation between
  11. the developed markets and the Asian-Pacific markets, Appl, Finan. Econ. 41, 43-47.  Clark, Todd, and Eric van Wincoop (1999),“Borders and Business Cycles,” Journal of International
  12. Economics, forthcoming.  Dornbusch, R. and Y. Park (1999), “Flexibility or Nominal Anchors?,” in Exchange Rate Policies in
  13. Emerging Asian Countries eds by S. Collignon, J. Pisani-Ferry, and Y. Park, Routledge, London.  De Brauwer, Gordon (2000), “Does a Formal Common-Basket Peg in East Asia Make Economic
  14. Sense?” paper presented at the Financial Markets and Policies in East Asia at ANU, Canberra, Australia.  Eichengreen, Barry and Tamim Bayoumi (1999), “Is Asia An Optimum Currency Area? Can It
  15. Become One?: Regional, global and historical perspectives on Asian monetary relations”, in S. Collignon, J. Pisani-Ferry, and Y. C. Park(eds.) Exchange Rate Policies in Emerging Asian Countries, 347-366.  Frankel, Jeffrey and Andrew Rose (1998), “The Endogeneity of the Optimum Currency Area
  16. Criteria,” Economic Journal 108, 1009-1025.  Geweke, J. (1977), “The Dynamic Factor Analysis of Economic Time Series Models,” in D.J. Aigner
  17. and A.S. Goldberg, eds., Latent Variables in Socio-economic Models, (Amsterdam: North Holland).  Glick, R, and Hutchinson, M.(1990), Financial liberalization in the Pacific Basin: Implication for real
  18. interest rate linkage, J.Japan.Int.Econ. 4, 36-48.  Gregory, A.W., A.C. Head and J. Raynauld (1997), “Measuring World Business Cycles,”
  19. International Economic Review, vol. 38, No. 3, pp.677-701.  Heston, Alan and Robert Summers (1991), "The Penn World Table (Mark 5): An Expanded Set of
  20. International Comparisons, 1950-1988", Quarterly Journal of Economics, pp.327-368.  Imbs, Jean (1999), “Co-Fluctuations,” CEPR Discussion Paper No. 2267.
  21. Kalemli-Ozcam, Sebnem, Bent Sorensen and Oved Yosha (2001), “Economic Integration, Industrial
  22. Specialization, and the Asymmetry of Macroeconomic Fluctuations,” Journal of International Economics, Vol.33, pp.107-137.  Kenen, Peter B. (1969), “The Theory Of Optimum Currency Areas: An Eclectic View” in R.
  23. Mundell and A. Swoboda eds, Monetary Problems of the International Economy, The University of Chicago Press, Chicago, 1969, pp. 41-60.  Kwan, C. H. (1998), “The Theory of Optimum Currency Areas and the Possibility of Forming a Yen
  24. Bloc in Asia”, Journal of Asian Economics, Vol. 9, No. 4, 555- 580.  Krugman, Paul/ Obstfeld, Maurice (2003), International Economics: Theory and Policy. San
  25. Francisco: Addison Wesley.  Lewis, Karen K. (1999), “Trying to Explain Home Bias in Equities and Consumption”, Journal of
  26. Economic Literature, Vol. 37, pp.571-608.  McKinnon, Ronald I (1963), “Optimum Currency Areas,” American Economic Review 53, pp. 717-
  27. 725.  McKinnon, R. (1999) ”The East Asian Dollar Standard, Life after Death?” Working Paper, Stanford
  28. University. Mundell, R. 1961, “A Theory of Optimum Currency Area,” American Economic Review,
  29. Vol. 60, pp.657-665.
  30. Rose, Andrew K. (2000), “One Money, One Market: The Effects of Common Currencies on Trade”,
  31. Economic Policy 30.  Sargent, T.J. and C. Sims (1977), “Business Cycle Modeling without Pretending to Have Too Much
  32. A Priori Economic Theory,” in New Methods in Business Cycle Research: Procedures from a Conference (Minneapolis: Federal Reserve Bank of Minneapolis, pp.45-110.  Stock, J.H. and N.W. Watson (1991), “A Probability Model of Coincident Economic mIndicators,” in
  33. K.Lahiri and G.H. Moore, eds., Leading Economic Indicators: New Approaches and Forecasting Records, Cambridge: Cambridge University Press, pp.63-89.  Tavlas, J.H. and N.W. Watson (1991), “A Probability Model of Coincident Economic mIndicators,”
  34. in K.Lahiri and G.H. Moore, eds., Leading Economic Indicators: New Approaches and Forecasting Records, Cambridge: Cambridge University Press, pp.63-89.

Cite this Article: