Business Cycle Correlation and Output Linkages among the Asia Pacific Economies

Tze-Haw Chan () and Roy W. L. Khong ()

MPRA Paper from University Library of Munich, Germany

Abstract: Currency crises and financial instability in the 1990s have increased the needs of regional cooperation, hence leading to the proposition of optimal currency area (OCA). But only if shocks are symmetric, the cost of relinquish the flexible monetary policy is to be outweighed by the benefits of forming OCA. To tackle the issue, this paper studies the extent of business cycle correlation and output linkages among fifteen Asia Pacific economies during 1961-2004. The real outputs series which sourced from the Penn World Data were estimated in standardized international dollars to construct business cycles based on the Christiano-Fitzgerald (2003)’s asymmetric band-pass filtering method. On the whole, the selected APEC members (especially ASEANs and NIEs) have achieved some important degree of business cycle co-fluctuations since the 1990s and further enhanced after 1997, most possibly attributed to the improved intra-trading and cross-boarder investments. For the US-Japan-ASEAN5 series, a dynamic analysis was conducted using the Autoregressive Distributed Log bounds test and the Unrestricted Error Correction Model (UECM) representation advanced in Pesaran et al. (2002). Nonetheless, the idiosyncratic and common shocks in ASEAN economies are more identical to the Japanese experience rather than the US’s. The overall finding has signified the brighter likelihood of economic cooperation and regional currency arrangements among APEC members.

Keywords: Business Cycle Correlation; Output linkages; OCA; Asia Pacific; Band-pass Filtering; UECM (search for similar items in EconPapers)
JEL-codes: C22 C51 E32 O47 (search for similar items in EconPapers)
Date: 2007-12-30, Revised 2008-10-24
New Economics Papers: this item is included in nep-cba, nep-mac, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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