Study of the Feasibility of Forming Currency Union for East Asian Countries
Date Issued
2012
Date
2012
Author(s)
Wang, Shu-Fang
Abstract
During these two decades, the economic cooperation of East Asian countries has become closer, and the discussion of the possibility of forming a currency union has been more intense accordingly. The research applied the Optimum Currency Area model created by Bayoumi and Eichengreen(1997) to measure the feasibility of East Asian countries to form common currency area, by the empirical data of ten East Asian countries from 1991 to 2010. The author first built the model predicting the bilateral exchange rate change by output disturbances, country size, inflation rate, trade openness and real interest rate, and estimated the effects of each variable by using OLS afterwards. Using the regression results, the author computed the OCA Index referred by Bayoumi and Eichengreen(1997) to forecast the behavior of bilateral exchange rate. The result showed that East Asian countries held the potential to for common currency area centered on China, and that Indonesia, the important founder of ASEAN, and Japan, who has been aggressive to be the core of currency integration in East Asia, both presented less stable currency cooperation relationship with other East Asian countries.
Subjects
Currency Union
Currency Integration
Optimum Currency Area
OCA Index
Type
thesis
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