Chapter

Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three

Edited by Eiji Ogawa and Kentaro Kawasaki

in International Financial Issues in the Pacific Rim

Published by University of Chicago Press

Published in print August 2008 | ISBN: 9780226386829
Published online February 2013 | e-ISBN: 9780226387086 | DOI: http://dx.doi.org/10.7208/chicago/9780226387086.003.0008
Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three

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A generalized-purchasing power parity (G-PPP) model is used to investigate whether a region is an Optimum Currency Area (OCA). The G-PPP is based on a PPP to extend to a multilateral exchange-rate version. In the case of bilateral exchange rates, the PPP holds in the long-run when a bilateral real exchange rate has stationarity, which means that the real exchange rate converges to a level in the long run. If a region has the convergence of the real exchange rates, the region can be an OCA where the nominal exchange rates can stay fixed with each other. This chapter begins with a theoretical background of the G-PPP model and the relationship between the G-PPP model and the OCA model. Next, it uses the G-PPP model to define a common currency area for the ASEAN plus three countries. It explains the adoption of a common currency basket arrangement into the ASEAN plus three countries. It then conducts an empirical analysis of the possibilities of adopting a common currency basket arrangement into the ASEAN plus three countries.

Keywords: generalized-purchasing power parity model; Optimum Currency Area; common currency area; exchange rates

Chapter.  7092 words. 

Subjects: Business and Management

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