Is East Asia as Prepared as Eurozone for Monetary Union?

Abstract

Abstract. Based on optimum currency areas (OCA) theory and recent developments in the exchange rate regime literature, this paper evaluates the level of preparedness of East Asia for monetary integration by using the EMU as benchmark. Ten macroeconomic dimensions are explored in which the first five facets are measured relative to a reference country, namely the US, Japan, or China whilst the remaining five facets are measured in absolute terms, over the most recent years. In some ways, the exercise does signify the relative economic dominance of the three largest economies to the region. Results suggest that East Asia might be fairly prepared for a monetary integration especially when the reference country is the US. Another interesting observation is that amongst the eurozone founding members, Ireland has shown the lowest degree of conformity in a number of the criteria.

A Diagnostic on the West African Monetary Union

“…Following Quah and Crowley (, ) and Quah (, , , ), the OCA measures implemented are bilateral trade intensity, business cycle symmetry, inflation convergence and interest rate cycle synchronicity. The efficacy of the criteria was made clear when Portugal, Italy, Greece and Spain were accurately distinguished by Artis and Zhang () as having the least OCA compliance against Germany.…”

“…Due to data limitation for the African cases, for all cases, annual GDP series at 2005 prices are used. Recent application of this method can be found in Quah (, , , ).…”

“…Besides, convergence in inflation reflects similarity in trade union aggressiveness and labour costs – implying less need for flexibility in nominal exchange rates for correcting trade imbalances (Fleming, ). In another respect, taking inflation convergence into account can be regarded as a theoretical normalisation because the OCA theory originates in the era of “fix‐price” economics (Quah, ). In practice, convergence of inflation is the central theme of Maastricht Treaty.…”

China and the Dollar: An Optimum Currency Area View

“…3 Zhang (2001 and2002), however, did not use an export diversifi cation variable.For recent applications of the framework used in this paper, see Quah (2012a;2012b;2012c); Quah and Ismail (2012) and Quah and Crowley (2012).…”

Potential Currency Areas in East Asia Using United States, Japan, or China as the Monetary Anchor

“…For readers interested in an evolutionary view of similar studies that involve the pre 1997-98 Asian crisis period, see Quah (2012a,b), Quah andCrowley (2010, 2012), and Quah, Crowley, and Ismail (2010). would outweigh the potential shock-absorbing capability of flexible exchange rates. Empirically, Bayoumi and Eichengreen (1997) detected that European countries which maintained the greatest levels of bilateral trade also experienced the greatest increase in their readiness for monetary unification.…”