Trade, International Business Cycles, and the Optimum Currency Area

This paper studies the co-movement of intra-Asian business cycles. Based on the regional bilateral trade statistics and using three de-trending techniques to examine several macroeconomic fundamentals, the negative trade effects prevailing in the cases of economic activity such as real GDP and industrial production indicate that tighter intra- Asian trade may most likely lead to more idiosyncratic business cycles and hence lower correlations of economic activity between Asian nations. Given this result, it is believed that for the foreseeable future, the creation of an Asian-Pacific monetary union and the corresponding currency area may be unsuitable and will not be recommended