Skip to main content
Article thumbnail
Location of Repository

PROSPECTS FOR ENHANCED EXCHANGE RATE COOPERATION IN EAST ASIA : SOME PRELIMINARY FINDINGS FROM GENERALIZED PPP THEORY

By Peter Wilson and Keen Meng Choy

Abstract

The Asian financial crisis increased economic disparities in the East Asian region, thus making monetary integration more difficult, but rekindled political interest in Asian monetary and exchange rate cooperation. This paper applies the theory of Generalized Purchasing Power Parity (G-PPP), which looks at the behavior of long-run real exchange rates, to assess the potential for an optimum currency area (OCA) among a subset of East Asian countries based on five of the more advanced members of the Association of Southeast Asian Nations (ASEAN5). Our findings suggest little support for an OCA for ASEAN5 as a bloc prior to the Asian financial crisis and mixed results in the post-crisis period. In particular, asymmetries in the way countries adjust to shocks and low or insignificant speeds of adjustment were found. Thus, although the application of single OCA criteria is notoriously demanding and our tests apply to only one of the many criteria for the successful formation of an OCA, we cannot find persuasive evidence that ASEAN5 as a group constitute a potential currency area with either the USA or Japan, even when the noisy period of the Asian financial crisis is omitted.Optimum currency area, exchange rates, East Asia, ASEAN

OAI identifier:
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.eaber.org/node/2258... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.