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

Hsiufen Hsu
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Hsiufen Hsu: Osaka School of International Public Policy (OSIPP),Osaka University

No 09E006, OSIPP Discussion Paper from Osaka School of International Public Policy, 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.

Keywords: Common currency area; Monetary integration; OCA; SVAR; East Asia (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-07
New Economics Papers: this item is included in nep-cba, nep-mon and nep-sea
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