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Journal of Economic Integration 2009 June;24(2) :321-342.
A Single Currency for Pacific Island Countries: a Revisit

T. K. Jayaraman Chee-Keong Choong 

The University of the South Pacific, Fiji Islands
Universiti Tunku Abdul Rahman, Malaysia
Copyright ©2009 Journal of Economic Integration

This paper re-visits the subject of a common currency for the Pacific region, comprising 14 Pacific island countries (PICs) and the region's two advanced countries, Australia and New Zealand. The PICs are highly dependent on Australia and New Zealand for trade in goods and services and aid inflows. Earlier studies on regional common currency, which dealt with certain aspects of the optimum currency area conditions, took into consideration three kinds of shocks, namely shocks in world output, domestic output and price levels. Since PICs' growth is influenced by regional developments to a larger degree than by world developments, this paper takes into consideration regional shocks, in addition to shocks in global and national outputs. Using variance decomposition analysis in this paper we investigate whether PICs and the region's two advanced countries could be suitable candidates for a currency union.

JEL Classification: A15, C32, F36, F42

Keywords: optimum currency area | shocks | pacific island countries | Australia and New Zealand
1. Alesena, A. and R. Barro (2001), "One Country, One Currency", in Alesena, A., Barro, R., (eds.) Currency Unions, Stanford, Hoover Institution, pp. 11-20.
2. Asian Development Bank (ADB) (2007), "Key Indicators of Asian and Pacific Developing Countries 2001", Asian Development Bank, Manila.
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Patterns of Shocks and Regional Currency for the Pacific Islands  2006 March;21(1)
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