Is currency union a feasible option in East Asia?: A multivariate structural VAR approach

Abstract

This paper investigates empirically the feasibility of creating a currency union in East Asia following closer monetary cooperations in recent years. Relying on a four-variable structural VAR model, we identify various types of shocks in nine East Asian economies, with nine European Monetary Union countries adopted as benchmarks. The analysis of structural disturbances suggests that it may be beneficial for Hong Kong, Indonesia, Korea, Malaysia, Singapore and Thailand to take the lead in endorsing and fostering a common currency zone.