Monetary Cooperation In East Asia's Economic Base Study

Monetary Cooperation is the core topic of the world economy and International Financial System. The process of European Monetary Integration shows that in order to achieve the equilibrious and stable development of the whole region, the real integration in goods and factors markets and the deep coordination of the monetary and financial policy are both indispensable. Monetary cooperation can stabilize the intra-region exchange rates and promote the real integration, facilitate the further convergence of region. The Monetary Cooperation of East Asia has attract much attention .The approve of Chiang Mai Initiative ignites the further discussion of this topic and shows the strong desire among the region to enhance the regional cooperation on trade and investment, and lays a good foundation for deeper monetary cooperation. Two important questions should be realized before any constructive suggestion made, one is how to choose the adequate way and scope of Coopertion, the other is sequence of monetary and real economic integration .To answer those question, one should know the economic foundations and constrains of monetary cooperation facing East Asia now and the relevant factors affecting the future considerations. The dissertation gives a synthetical analysis of economic foundations and constrains of monetary cooperation facing East Asia under the guidance of Optimal Currency Areas Theory. The general framework includes "current constrain"and "dynamic constrain". The author assess the currenct situation of monetary cooperation by two steps,first analysis how East Asia fits for the optimal currency criteria from two aspects namely "Symmetry "and "Integration "and then assess the general cost by using the Optimal Currency Areas Index Method. The "dynamic constrain"is a testify of the "Endogeneity Hypothesis "between the integration and regional symmetry or convergernce which intended to see if the monetary cooperation is a self-enforcement process and give suggestions on the sequence between the real integration and monetary integration. Chapter 1 of this assay gives a general review of the relevant literature on Monetary Cooperation, summarizing the most prominent questions to be settled in East Asia, then sets up the whole framework of research and explains some main concepts. Chapter 2 gives an overview of the Theory of Optimal Currency Areas, summarizing the various Criteria under Cost-Benefit Framework and introduce the "Endogeneity Hypothesis ", and builds up a genenral framework for analyzing the fundmental issues about monetary cooperation, give a brief review of relevant empirical researches. Chapter 3 and 5 set out research on the current constrains of East Asia from single criteria aspects. The analysis focusing the Asymmetries in East Asia includes: general differences of each membership, the structural asymmetry of industries and trade, the synchronization and convergence of macroeconomic cycles and the asymmetry of shocks ,exchange regimes are also studied to disclose the preference of goverments. The above analysis will help to identify the cost of cooperation. The analysis of the integration of regional trade, investment, labor movement and some institutional arrangement aiming at enhancing the future integration are introduced in chapter 5, which helps to identify the benefits of cooperation. Chapter 6 gives a synthesis evaluation of current constrains facing each member of East Asia. Modifying the Optimal Currency Areas Index method, the author intend to identify the essential factors affecting the volatility of the bilateral nominal exchange rate of East Asia and form the OCA Index to judge whether there is a potential group of low cost cooperation. Chapter 7 testifies whether East Asia satisfy the "Endogeneity Hypothesis". The author inspects the dynamic relation both from the regional aspect and the bilateral aspect. Furthermore, by identify the main factor affecting the divergences of countries, the author give some suggestions to reduce the regional divergences that can enhance the future monetary cooperation. In the concluding, the author point out that according to the current constrains, there is a core group composing small open economies in East Asia among which the cost of monetary cooperation can be minimized, and they should try to stabilize their exchange rate with both US dollar and Japanese Yen. At now some countries are costly to join the core group for deeper cooperation. The author also points out that the "Endogeneity Hypothesis"are satisfied in East Asia, so from the aspect of "dynamic benefits", the region can synchronize the monetary integration and the real integration to obtain the future benefits. Some nominal convergence criteria on interest rate, inflation and budget deficit ratio are beneficial to enhance further cooperation.