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International Financial Issues in the Pacific RimGlobal Imbalances, Financial Liberalization, and Exchange Rate Policy$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2008

Print ISBN-13: 9780226386829

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387086.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 28 July 2021

Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three

Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three

Chapter:
(p.219) 7 Adopting a Common Currency Basket Arrangement into the ASEAN Plus Three
Source:
International Financial Issues in the Pacific Rim
Author(s):
Eiji Ogawa, Kentaro Kawasaki
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226387086.003.0008

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

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