Does East Asia Move towards an Optimum Currency Area? Evidence from the Multivariate Structural VAR Analysis

Xing-kun Liu

Abstract


Focusing on the symmetry in structural shocks and employing a four-variable structural vector auto-regression model, this paper investigated the dynamic trend of the feasibility for East Asian economies to form a currency union. The analysis of correlations of external supply shocks, domestic supply shocks, real demand shocks and monetary shocks (nominal shocks) with a sample period from 1980 to 2010 suggests that it is not reasonable for East Asia to form a single currency union currently in the entire region. However, a viable approach for regional monetary integration would be to start with smaller currency areas: Northeast Asian sub-region cluster including Japan, Korea, Taiwan and Hong Kong, and Southeast sub-regional cluster including Indonesia, Malaysia, Singapore and Thailand, and other economies might be included later. We can reasonably expect that the integration of these sub-regional currency areas may lead to a single currency in East Asia when a sufficient degree of economic convergence is achieved.


Full Text: PDF DOI: 10.5539/ijef.v4n12p159

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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