Real Effects of Common Currencies in East Asia

25 Pages Posted: 23 Aug 2007

See all articles by Kazuko Shirono

Kazuko Shirono

International Monetary Fund (IMF)

Date Written: July 2007

Abstract

Since the 1997 Asian currency crisis, new interest has emerged in the formation of a common currency area in East Asia. This paper provides estimates of trade and welfare effects of East Asian currency unions, using a micro-founded gravity model. Counter-factual experiments to assess the effects of various hypothetical currency arrangements for East Asia suggest that an East Asian currency union will double bilateral trade in the region, but the resulting welfare effects will be moderate. However, if Japan, a major trade partner for East Asia, is included in the union, welfare effects increase substantially. The evidence thus suggests that certain regional currency arrangements in East Asia will stimulate regional trade rigorously and can generate economically significant welfare gains.

Keywords: Working Paper, Monetary unions, East Asia, International trade, Economic models

Suggested Citation

Shirono, Kazuko, Real Effects of Common Currencies in East Asia (July 2007). IMF Working Paper No. 07/166, Available at SSRN: https://ssrn.com/abstract=1007915

Kazuko Shirono (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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