Anchor for East Asia: The USA or Japan?

27 Pages Posted: 21 Oct 2009

Date Written: October 21, 2009

Abstract

Applying the optimum currency area (OCA) criteria that are dependent on a reference country, this paper examines the suitability of the United States and Japan to serve as the anchor country should a monetary union is initiated in the East Asian region. The criteria examined are trade openness, business cycle synchronization, exchange rate volatility, inflation convergence, and interest rate cycle synchronization. The ‘performance’ of these two potential anchor countries is compared for three different economic periods: the pre-crisis, the crisis, and the post-crisis period. Based on a scorecard of 16 countries in the region, results suggest that the United States might be the more fitting candidate to be the anchor country. In this respect, the finding may help convince Japan to lock the yen-dollar rate in a move toward regional monetary stability. Results could also be beneficial to international business managers in their decisions on international operations and geographical diversification.

Keywords: optimum currency area, Asia, monetary integration, Asian monetary union, dollar

Suggested Citation

Quah, Chee-Heong, Anchor for East Asia: The USA or Japan? (October 21, 2009). Available at SSRN: https://ssrn.com/abstract=1492210 or http://dx.doi.org/10.2139/ssrn.1492210

Chee-Heong Quah (Contact Author)

University of Malaya ( email )

Kuala Lumpur, 50603
Malaysia

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