No Access

ASIAN MONETARY COOPERATION: PERSPECTIVES FROM THE OPTIMUM CURRENCY AREA ANALYSIS

Claremont Graduate University and Claremont McKenna College, Harper East 206, School of Politics and Economics, 160 E. 10 street, Claremont, 91711, USA

Economic Policy Studies, Harper East 206, School of Politics and Economics, 160 E. 10 street, Claremont, 91711, USA

Corresponding author.

Horton Professor of Economics.

Director of the Claremont Institute.

Search for more papers by this author

ORAWAN PERMPOON

Politics and Economics at Claremont, Graduate University, USA

Ph.D. Students.

Search for more papers by this author

, and

LALANA SRISORN

Politics and Economics at Claremont, Graduate University, USA

Ph.D. Students.

Search for more papers by this author

https://doi.org/10.1142/S0217590810003638Cited by:5 (Source: Crossref)

Abstract

We argue that a number of recent studies have overstated the economic case for the creation of a common Asian currency by focusing on only a few of the relevant criteria. We also conclude that endogenous forces are unlikely to be sufficiently strong that adopting a common currency would quickly turn Asia into an optimum currency area (OCA) as some have suggested. We argue that more attention needs to be devoted to issues of monetary, fiscal, and exchange rate coordination under a fairly flexible exchange rate system and that OCA analysis is a valuable framework for analyzing such issues.

An earlier version of this paper was presented at the Claremont-KIEP – KEI Workshop on Asian Monetary Cooperation held on November 30, 2007 in Washington, DC and the High-Level Symposium on Asian Economic Integration, September 4–5, 2008 in Singapore.

Keywords:

References

D. M. Andrews and T. D. Willett, International Organization 51(03), 479 (2003), DOI: 10.1162/002081897550438. Crossref, Google Scholar
A. Angkinand, E. M. P. Chiu and T. D. Willett, Open Economies Review 20, 61 (2009), DOI: 10.1007/s11079-007-9066-0. Crossref, Web of Science, Google Scholar
S. G. Baek and C. Y. Song , Currency Union in East Asia , eds. H. G. Choo and Y. Wang ( Korea Institute for International Economic Policy , 2002 ) . Google Scholar
M. Baxter and M. A. Kourparitsas, Journal of Monetary Economics 52(1), 113 (2005), DOI: 10.1016/j.jmoneco.2004.08.002. Crossref, Web of Science, Google Scholar
Bayoumi, T and B Eichengreen (1994). One Money or Many? Analyzing the Prospects for Monetary Unification in Various Parts of the World. Princeton Studies in International Finance, No. 76. . Google Scholar
T. Bayoumi, B. Eichengreen and P. Mauro, Journal of the Japanese and International Economics 14, 121 (2000), DOI: 10.1006/jjie.2000.0446. Crossref, Web of Science, Google Scholar
R. Boyer , Regional Integration: Europe and Asia Compared , eds. W. Moon and B. Andreosso-O'Callaghan ( Ashgate , Chippenham , 2005 ) . Google Scholar
R. Burdekin and P. L. Siklos , Deflation: Current and Historical Perspectives ( Cambridge University Press , Cambridge, UK , 2004 ) . Crossref, Google Scholar
F. Canova, Journal of Monetary Economics 41, 475 (1998), DOI: 10.1016/S0304-3932(98)00006-3. Crossref, Web of Science, Google Scholar
Cheng, T and WM Chia (2008). Business Cycle Co-movement between Japan, China, and East Asian Countries. Presented at Symposium on Asian Economic Integration. Singapore. . Google Scholar
E. Chiu and T. D. Willett , International Studies Quarterly . Google Scholar
C. Choi , Currency Union in East Asia , eds. H. G. Choo and Y. Wang ( Korea Institute for International Economic Policy , 2002 ) . Google Scholar
Chow, HK, P Kris, R Mariano and A Tan (2008). Regional Policy Cooperation to Support Asian Economic Integration. Paper presented at Symposium on Asian Economic Integration. Singapore. . Google Scholar
H. K. Chow and Y. Kim, Journal of Macroeconomics 25, 331 (2003), DOI: 10.1016/S0164-0704(03)00041-7. Crossref, Web of Science, Google Scholar
B. Coeure , Exchange Rate Regimes in East Asia , eds. G. De Brouwer and M. Kawai ( Routledge , London , 2004 ) . Google Scholar
Crowley, P and CH Qual (2009). A Single Currency for Asia? Evaluation and Comparison Using Hierarchical and Model-Based Cluster Analysis. Prepared for European Union Studies Association Conference. . Google Scholar
P. De Grauwe , Economics of Monetary Union ( Oxford University Press , 2005 ) . Google Scholar
P De Grauwe and FP Mongelli (2005). Endogeneities of Optimum Currency Areas: What Brings Countries Sharing a Single Currency Closer Together? European Central Bank Working Paper, No. 468 . Google Scholar
B. Eichengreen, Journal of Money, Credit, and Banking 34(1), 1 (2002), DOI: 10.1353/mcb.2002.0028. Crossref, Web of Science, Google Scholar
B Eichengreen and TA Bayoumi (1996). Is Asia an Optimum Currency Area? Can it become one? Regional, Global and Historical Perspectives on Asian monetary Relations. Center for International and Development Economics Research C96'081. . Google Scholar
B. Eichengreen , Fostering Monetary and Exchange Rate Cooperation in East Asia , EAMC Forum Conference on Monetary and Financial Cooperation in Asia ( 2007 ) . Google Scholar
W. Enders and S. Hurn, Review of International Economics 2, 179 (1994), DOI: 10.1111/j.1467-9396.1994.tb00039.x. Crossref, Web of Science, Google Scholar
Filippini, C (2008). Economic Integration: A Comparison between the EU and East Asia. Paper presented at Symposium on Asian Economic Integration. Singapore. . Google Scholar
Flood, RP and AK Rose (2009). Inflation Targeting and Business Cycle Synchronization. Presented at the Third Annual JIMF–SCCIE Conference on The Emerging Global Financial Architecture: What's New and What's Old? University of California, Santa Cruz. . Google Scholar
J. A. Frankel and A. K. Rose, The Economic Journal 108(449), 1009 (1996), DOI: 10.1111/1468-0297.00327. Crossref, Web of Science, Google Scholar
Gao, H (2006). Monetary Cooperation in East Asia: How Far Can East Asian Countries Go? Presented at Conference on East Asian Monetary Cooperation and China's Perspective, Beijing. . Google Scholar
Genberg, H (2006). Exchange Rate Arrangements and Financial Integration in East Asia: On a Collision Course? Working Paper No. 122 by Oesterreichische National Bank (Austrian Central Bank). . Google Scholar
Genberg, H and D He (2007). Monetary and Financial Cooperation Among EMEAP Central Banks. Paper written for the Claremont–Bologna SCAPE Policy Forum on Capital Flows, Financial Markets and Economic Integration. National University of Singapore. . Google Scholar
M. Goldstein , Managed Floating Plus. Policy Analyses in International Economics ( Institute of International Economics , London, Routledge , 2002 ) . Google Scholar
J. Goto and K. Hamada , Macroeconomic Linkages , eds. T. Ito and A. O. Krueger ( University of Chicago Press , Chicago , 1994 ) . Google Scholar
Y. Huang and F. Guo, Research in International Business and Finance 20, 77 (2006), DOI: 10.1016/j.ribaf.2005.08.005. Crossref, Web of Science, Google Scholar
Z. Jikang and L. Yin , Is East Asia Suitable for a Monetary Union? , First Consortium Meeting EU–NESCA ( 2005 ) , www.ieem.org.mo/nesca/documents/papers/Zhang-Jikang.doc . Google Scholar
M. Kawai , Toward an East Asian Exchange Rate Regime ( Brookings Institution Press , 2007 ) . Google Scholar
M. Kawai and T. Motonishi , Is East Asia an Optimum Currency Area? , Conference Proceedings Tokyo ( 2004 ) , http://www.mof.go.jp/english/soken/pri_top.htm . Google Scholar
Kawai M and C Houser (2007). Evolving ASEAN + 3 ERPD: From Peer Reviews to Due Diligence. Paper presented The First OECD Southeast Asia Regional Forum: Peer Review Mechanism for Policy Reform. . Google Scholar
P. B. Kenen and E. Meade , Regional Monetary Integration ( Cambridge University Press , New York , 2008 ) . Google Scholar
J. S. Kim , Is the Pegged Regime a Feasible Alternative in East Asia? , Conference Proceedings Tokyo ( 2004 ) , http://www.mof.go.jp/english/soken/pri_top.htm . Google Scholar
S. Kim, S. Kim and Y. Wang, Japan and the World Economy 18, 143 (2006), DOI: 10.1016/j.japwor.2004.10.001. Crossref, Web of Science, Google Scholar
S. Kwack, Journal of Asian Economies 153 (2004), DOI: 10.1016/j.asieco.2003.12.006. Google Scholar
S. Y. Kwack , C. Y. Ahn and Y. Lee , Monetary Cooperation in East Asia: Exchange Rate, Monetary Policy, and Financial Market Issues ( Korea Institute of International Economic Policy , 2003 ) . Google Scholar
F. Larraín and J. Tavares, Journal of Policy Reform 6(1), 35 (2003). Crossref, Google Scholar
Loayza, N, H Lopez and A Ubide (2001). Co-movements and Sectoral Independence: Evidence for Latin America, East Asia, and Europe. IMF staff papers 48(2). . Google Scholar
M. Massmann and J. Mitchell, Journal of Business Cycle Measurement and Analysis 1(3), 275 (2004). Google Scholar
R. A. Mundell, The American Economic Review 51(4), 657 (1961). Web of Science, Google Scholar
T. H. Ng, The Developing Economies 2, 113 (2002). Google Scholar
Y. C. Park , Debating China's Exchange Rate Policy , eds. M. Goldstein and N. Lardy ( Peterson Institute for International Economics , 2008 ) . Google Scholar
E. Ogawa and T. Ito, Journal of Japanese and International Economies 16(3), 317 (2002), DOI: 10.1006/jjie.2002.0499. Crossref, Web of Science, Google Scholar
E. Ogawa and K. Kawasaki, New East Asian Regionalism: Causes, Progress and Country Perspectives, eds. H. Lee, C. Harvie and F. Kimura (Edward Elgar, Cheltenham, 2004) pp. 283–305. Google Scholar
A. Y. Ouyang, R. Rajan and T. Willett, Global Economic Review 37(2), 171 (2008), DOI: 10.1080/12265080802021185. Crossref, Web of Science, Google Scholar
P. B. Rana, Journal of Asian Economics 18(5), 711 (2007), DOI: 10.1016/j.asieco.2007.07.002. Crossref, Google Scholar
Y. Rhee, Social Science Japan Journal 7, 83 (2004), DOI: 10.1093/ssjj/7.1.83. Crossref, Web of Science, Google Scholar
Rüffer, R, M Sánchez and J Shen (2007). Emerging Asia's Growth and Integration. European Central Bank Working Paper No. 715. . Google Scholar
Ruffini, P (2006). Regional Integration in East Asia — Which Lessons to Draw from the European Experience? Presented at the Annual Meeting of the Asia Pacific Economic Association, Seattle. . Google Scholar
Salvatore, D (2007). Lesson from EMU for Asia. Presented at The Claremont–Bologna-SCAPE International Economic Policy Forum. . Google Scholar
D. Salvatore , J. Dean and T. Willett , The Dollarization Debate ( Oxford University Press , 2003 ) . Crossref, Google Scholar
K. Shin and C. Shon, The World Economy 29(12), 1649 (2006), DOI: 10.1111/j.1467-9701.2006.00862.x. Crossref, Web of Science, Google Scholar
K. Shin and Y. Wang, Asian Economic Papers 2(3), 1 (2003). Crossref, Web of Science, Google Scholar
Takagi, S and I Kozuru (2008). Output and Price Linkages in Asia's Post-Crisis Macroeconomic Interdependence. Presented at Symposium on Asian Economic Integration. Singapore. . Google Scholar
G. S. Tavlas, The World Economy 16(6), 663 (1993), DOI: 10.1111/j.1467-9701.1993.tb00189.x. Crossref, Web of Science, Google Scholar
Watanabe, S and M Ogura (2006). How Far Apart are the Two ACUs from Each Other?: Asian Currency Unit and Asian Currency Union. Bank of Japan Working Paper Series. . Google Scholar
C. Wihlborg and T. Willett, Financial Regulation and Monetary Arrangements After 1992, eds. C. Wihlborg, M. Frattianni and T. D. Willett (North-Holland, 1991) pp. 279–297. Google Scholar
C. Wihlborg, T Willett and N Zhang (2009). Real Exchange Rate Movements and Endogenous OCA Analysis: Lessons from the Euro Area for Asia. Presented at the EUSA Conference, Los Angeles. . Google Scholar
T. D. Willett, The Milken Institute Review (2002) pp. 50–59. Google Scholar
T. D. Willett, Open Economies Review 14(1), 71 (2003), DOI: 10.1023/A:1021251303089. Crossref, Web of Science, Google Scholar
T. D. Willettet al., Asian Economic Papers 3(3), 32 (2005), DOI: 10.1162/1535351054825184. Crossref, Google Scholar
T. D. Willett, The World Economy 30(5), 709 (2007), DOI: 10.1111/j.1467-9701.2007.01023.x. Crossref, Web of Science, Google Scholar
T. D. Willett, O Permpoon and C Wihlborg (forthcoming). Endogenous OCA Analysis and the Early Euro Experience. The World Economy. . Google Scholar
J. Williamson , Exchange Rate Policies for Emerging Asian Countries , eds. S. Collignon , J. Pisani-Ferry and Y. C. Park ( Routledge , London , 1999 ) . Google Scholar
C. Wyplosz, Future Directions for Monetary Policies in East Asia (2002) pp. 124–155. Google Scholar
C. Wyplosz, Asian Economic Policy Review 1(2), 259 (2006), DOI: 10.1111/j.1748-3131.2006.00030.x. Crossref, Google Scholar