A note on the feasibility of a monetary area in the East Asia

After the constitution of the European Monetary Union (EMU), a new scope for monetary coordiantion is emerging in other regional areas. The standard approach to theoretically analyse the feasibility of a monetary union is the optimum currency areas (OCA) approach. Although this approach has been claimed to be non-operative, recent studies using synchronisation measures have shown a high potential applicability. This paper provides an empirical application of the OCA theory to a hypothetical East Asian monetary union centred on Japan’s currency. We find that despite the increasing synchronisation of macroeconomic determinants of a monetary area during 1980–2001, the perspective of an Asian currency union is still not economically feasible.

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Joan Costa-FontEmail: