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Journal of Economic Integration 2004 September;19(3) :536-567.
Monetary Integration in East Asia: An Empirical Approach

José Brandão de Brito 

Banco de Portugal and Technical University of Lisbon
Copyright ©2004 Journal of Economic Integration

This paper investigates empirically the economic feasibility of monetary integration in East Asia. A structural VAR model is employed to decompose real output, real exchange rate and price level into a lagged polynomial of supply, demand and monetary shocks. The shocks are identified through the imposition of long-run restrictions, which are extracted from a version of Clarida and Gali's (1994) model extended in this paper to encompass the Balassa-Samuelson-effect. Once identified, the shocks are used to construct indicators relevant to monetary integration. Using the Euro-11 countries as benchmark, the overall results suggest that East Asian countries fulfil reasonably well the criteria looked at.

JEL Classification: C32, F15, F40

Keywords: Monetary integration | East Asia | optimum currency area | Balassa-Samuelson effect | structural VAR | long run identifying assumptions
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