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Is a Common Currency Area Feasible for East Asia? A Multivariate Structural Vector Autoregression Approach
Author(s) -
Hsu HsiuFen
Publication year - 2010
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/j.1467-8381.2010.02045.x
Subject(s) - vector autoregression , multivariate statistics , economics , structural vector autoregression , econometrics , currency , autoregressive model , east asia , bayesian vector autoregression , monetary economics , mathematics , monetary policy , geography , statistics , china , archaeology , bayesian probability
In this paper the feasibility of forming a common currency area in East Asia is investigated. A three‐variable structural vector autoregression model is used to identify three types of shocks: global, regional and domestic shocks. The empirical results show that in the post‐crisis period the importance of asymmetric domestic shocks has declined sharply, whereas that of symmetric global and regional shocks has increased. Furthermore, although a ‘prevalent shock’ cannot be uniquely defined, most East Asian economies respond to global and regional shocks in a symmetric way. Although the findings do not provide strong support for forming a common currency area in this region at the current stage, they suggest that most East Asian economies have become relatively symmetric in terms of economic shocks and adjustments, implying that a common currency area might become viable through deepening regional integration.