Regional monetary integration in the presence of two large countries: What modality makes sense for East Asia? |
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| Institution: | 1. Dongduk Women’s University, Seoul, South Korea;2. Department of Economics, Konkuk University, 1 Hwayang-Dong, Gwangjin-Gu, Seoul 143-701, South Korea;3. Independent Evaluation Office, International Monetary Fund, Washington, DC, USA;1. Institute of Developing Economies, JETRO, 3-2-2 Wakaba, Mihama-ku, Chiba-shi 261-8545, Chiba, Japan;2. Economic Research Service, USDA, 355 E Street SW, Washington, DC, USA;1. Sorbonne Universités, UPMC Univ Paris 06, Center of Research in Myology, UMRS 974, F-75013 Paris, France;2. INSERM U974, F-75013 Paris, France;3. CNRS FRE 3617, F-75013 Paris, France;4. Institut de Myologie, F-75013 Paris, France;5. Assistance Publique-Hôpitaux de Paris, Groupe Hospitalier Pitié-Salpêtrière, U.F. Cardiogénétique et Myogénétique, Service de Biochimie Métabolique, Paris F-75013, France;1. School of Biomedical Engineering, Tianjin Medical University, No. 22 Qixiangtai Road, Heping District, Tianjin 300070 China;2. Department of Physiology and Pharmacology, SUNY Downstate Medical Center, 450 Clarkson Ave., Brooklyn, NY 11203, USA;3. Center for Neural Science, New York University, 4 Washington Place, New York, NY 10003, USA |
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| Abstract: | This paper analyzes the modalities of East Asian monetary integration by taking note of the relevance of two large economies, one outside the region (the United States) and one inside (Japan), for monetary policy making. Within the framework of a three-country model, it derives the social welfare of two regional economies and uses numerical calibration to show how it crucially depends on the specific modality of monetary integration. By using parameters obtained from the actual macroeconomic data for 1981–1996, we find that the smaller regional economy (Korea) always benefits from monetary integration, while the large regional economy (Japan) benefits from monetary integration only when it is asymmetric (such as a peg to a common basket or yenization), so that it can continue to enjoy some monetary autonomy. Symmetric integration, while not a viable option for East Asia in the short run, may become feasible in the long run if economic integration deepens sufficiently to produce convergence in economic structure and synchronization of business cycles. |
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