Three Essays on Regional Economic Integration and
Exchange Rate Regimes
June 9th, 2010
Xiaodan Zhao
The degree of economic integration
1.
2.
3.
4.
5.
6.
Preferential trading area
Free trade area
Customs union
Common market
Economic and monetary union
Complete economic integration
Benefit and Cost of currency area
Benefits
 Lower transaction costs
 Reduce uncertainty about exchange rate variability and
relative price changes
 Enhance the confidence in the direction of policies
Costs
 Lose the monetary independence
 Lose nominal rate flexibility
 Constraint in the fiscal policy
Optimum currency area (OCA)
 Definition
 Principal criteria for a successful currency union:
 Symmetry of shocks across countries (Mundell, 1961)
 Labor mobility across the region (Mundell, 1961)
 Openness of the economies (McKinnon, 1963)
 Well-diversified economies (Kenen, 1969)
 In addition…
Monetary Unions we study here
 The CFA franc zone
 The Eastern Caribbean Currency Union
 The potential Asian Monetary Union
Where in the world are they?
“CFA”
Colonies Francaises d’Afrique
“French Colonies of Africa”
Communauté financière d'Afrique
("Financial Community of Africa")
Coopération financière en Afrique centrale
("Financial Cooperation in Central Africa")
BCEAO
BEAC
Banque Centrale des États de l'Afrique de l'Ouest
"Central Bank of the West African States"
Dakar (Senegal)
Banque des États de l'Afrique Centrale
"Bank of the Central African States"
Yaounde (Cameroon)
UEMOA
CEMAC
Union Économique et Monétaire Ouest Africaine
"West African Economic and Monetary Union"
Communauté Économique et Monétaire de l'Afrique Centrale
"Economic and Monetary Community of Central Africa"
Benin
Burkina Faso
Côte d'Ivoire
Guinea-Bissau
Mali
Niger
Senegal
Togo
Cameroon
Central African Republic
Chad
Republic of the Congo
Equatorial Guinea
Gabon
500 francs between BCEAO and BEAC
(2002 banknote)
Model
• Shocks are classified as being global, regional and countryspecific (ug, ur and ud). If the country-specific shocks are
prevalent and uncorrelated across countries, the cost to sustain
a currency area would be prominent.
y   0  1 ( L)u   2 ( L)u   3 ( L)u
d
t
g
t
r
t
d
t
2
3
• where  i ( L)  i 0   i1L   i 2 L   i 3 L  ...is a polynomial
function of the lag operator L
Vector Autoregression (VAR) model
• A 3×3 structural VAR model is used. Consider a three-variable model
with global, regional and local outputs: yg, yr and yd. They are related to
three structural shocks as follows:
 ytg   A11 ( L)
 r 
 yt    A21 ( L)
 y d   A ( L)
 t   31
A12 ( L)
A22 ( L)
A32 ( L)
A13 ( L)   utg 
 y 
A23 ( L)   ut 
A33 ( L)   utd 
0
1
2 2
where Aij ( L)  aij  aij L  aij L  ... is a polynomial function with lag operator L in a
matrix form
Var (ut )  I
Two restrictions
• (1) neither regional nor country-specific shocks have long-run effects on
global output;
• (2) country-specific shocks have no long-run effects on regional output.
Data
• Valued added industrial production (constant 2000 US$).
• 12 countries (excluding Chad and Equatorial Guinea due to inadequate data)
in the CFA franc zone
• 10 EMU countries (excluding Belgium and Luxembourg due to data
insufficient) and UK, US and Japan
• Data for CFA franc zone countries are taken from WDI (World Bank
Development Indicators 2004).
• data for EMU and other developed countries are retrieved from IFS
(International Financial Statistics)
• Data retrieve from both data sets are annual data from 1970 to 2004
• Exports and imports data for CFA franc zone countries are retrieved from
DOTs (Direction of Trade Statistics August,2005)
Table 2.2 Variance decompositions
U-G
Y-D
U-R
U-D
2
10
23.5
20.8
70.6
55.6
5.9
23.6
Finland
2
10
5.3
6.4
16.5
23.8
78.3
69.8
France
2
10
8.4
13.4
70.5
66.4
21.1
20.2
Germany
2
10
9.3
8.7
44.4
45.8
46.3
45.5
Greece
2
10
24.3
23.8
41.7
41.1
34.0
35.1
Ireland
2
10
7.2
6.3
9.8
19.1
83.0
74.6
Italy
2
10
12.4
14.6
4.5
11.2
83.1
74.3
Netherlands
2
10
6.9
7.6
31.2
31.5
61.8
60.8
Portugal
2
10
2.2
3.5
49.7
49.2
48.1
47.3
Spain
2
10
16.0
13.7
63.9
54.4
20.1
31.9
2
10
24.5
20.5
18.3
32.0
57.2
47.5
Norway
2
10
27.9
35.3
16.4
16.2
55.7
48.6
Sweden
2
10
10.7
15.7
48.3
43.2
41.0
41.1
Switzerland
2
10
25.2
26.2
23.8
32.6
51.0
41.2
UK
2
10
57.7
57.2
18.4
19.7
23.9
23.0
Years
A. Europe
Group I
Austria
Group II
Denmark
Table 2.3 Variance decompositions
Years
U-G
Y-D
U-R
U-D
Benin
2
10
42.2
47.3
6.7
6.8
51.1
45.9
Burkina Faso
2
10
14.3
23.8
0.2
2.4
85.6
73.8
Cote d'Ivoire
2
10
8.8
11.8
37.5
36.4
53.8
51.8
Guinea-Bissau
2
10
6.5
15.5
13.3
25.7
80.3
58.8
Mali
2
10
0.6
4.5
37.9
39.0
61.5
56.5
Niger
2
10
18.0
17.5
2.0
2.0
80.0
80.5
Senegal
2
10
1.3
3.2
8.3
8.7
90.3
88.1
Togo
2
10
17.6
21.9
10.2
10.2
72.2
67.9
Cameroon
2
10
27.9
35.5
56.9
37.6
15.2
26.8
Central African Republic
2
10
7.0
18.7
18.9
16.3
74.1
64.9
Chad
2
10
1.7
5.4
2.0
2.4
96.2
92.2
Republic of the Congo
2
10
24.5
31.2
5.0
6.3
70.5
62.4
Table 2.4 Variance Decompositions in Alternative Models: CFA Franc Zone
BM
M1
M2
M3
(2)
(10)
(2)
(10)
(2)
(10)
(2)
(10)
Benin
U-R
U-D
6.7
51.1
6.8
45.9
17.6
76.0
18.5
73.0
6.8
41.4
7.3
38.0
4.7
52.6
5.2
47.1
Burkina Faso
U-R
U-D
0.2
85.6
2.4
73.8
3.4
96.5
6.2
90.0
2.1
85.8
5.9
74.9
0.7
85.3
1.4
73.8
Cote d'Ivoire
U-R
U-D
37.5
53.8
36.4
51.8
7.0
50.4
7.3
51.2
5.8
52.5
6.9
49.0
16.6
53.7
17.8
49.9
Guinea-Bissau
U-R
U-D
13.3
80.3
25.7
58.8
16.8
78.9
22.1
65.7
9.3
84.6
21.5
67.9
15.1
80.0
26.9
59.4
Mali
U-R
U-D
37.9
61.5
39.0
56.5
12.3
69.3
12.2
63.4
41.6
53.4
44.6
50.1
39.6
60.2
40.5
55.8
Niger
U-R
U-D
2.0
80.0
2.0
80.5
32.5
58.9
29.3
62.6
1.2
73.2
1.4
74.0
1.9
80.0
1.9
80.5
Senegal
U-R
U-D
8.3
90.3
8.7
88.1
7.5
91.8
8.5
90.0
9.2
88.1
10.2
84.7
8.3
90.4
8.6
88.3
Togo
U-R
U-D
10.2
72.2
10.2
67.9
0.7
98.4
1.9
97.1
1.7
88.7
1.9
83.4
10.1
72.6
10.1
68.3
Cameroon
U-R
U-D
56.9
15.2
37.6
26.8
27.5
71.4
35.8
62.4
3.4
92.4
3.4
94.0
51.7
21.0
34.6
32.0
Cent Afr Rep
U-R
U-D
18.9
74.1
16.3
64.9
7.2
70.6
7.7
69.7
23.0
72.1
20.1
66.2
24.6
65.7
22.0
59.5
Chad
U-R
U-D
2.0
96.2
2.4
92.2
14.8
76.5
16.4
66.2
2.0
95.9
2.0
94.3
0.2
98.8
1.4
95.4
Rep of Congo
U-R
U-D
5.0
70.5
6.3
62.4
0.6
97.0
5.3
91.1
2.2
62.2
7.6
56.7
4.2
71.7
5.6
63.4
Conclusion
• That domestic shocks dominate for CFA franc zone countries
shows CFA zone countries are structurally different from each
other and thus more likely to be subject to asymmetric shocks.
• Reasons:
– Low trade among members in the CFA franc zone;
– Economic growth in the zone heavily depend on external shocks such
as wide variations in the terms of trade.
• Implications:
– CFA franc zone is not consistent with OCA criteria.
– The CFA franc zone should have been costly to maintain.
Parity
Creation of the East
Caribbean dollar
1965
EC$4.8 = £1
Pegged to the British
pound
19651975
EC$4.8 = £1
Pegged to the United Sates
dollar
Since
1976
EC$2.7 = US$1
East Caribbean dollar versus Canadian dollar
Table 3 Country characteristic variables
Total
population
Area
(sq. km)
Median
age
Life
expectancy
Antigua and Barbuda
69,842
443
30.5
72.7
Dominica
72,514
754
29.4
75.3
Grenada
90,343
344
22.4
Languages
Literacy
Independence
English (official),local dialects
85.8%
November 1, 1981
English (official), French patois
94.0%
November 3, 1978
65.6
English (official), French patois
96.0%
February 7, 1974
ECCU members
Saint Kitts and Nevis
39,619
261
28.3
72.9
English
97.8%
September 19, 1983
Saint Lucia
172,884
616
26.0
74.3
English (official), French patois
90.1%
February 22, 1979
Saint Vincent and the Grenadines
118,432
389
28.0
74.3
English (official), French patois
96.0%
October 27, 1979
14,108
102
32.3
80.5
English
95.0%
April 1, 1982
9,638
102
29.7
79.2
English
97.0%
December 19, 1989
Bahamas
307,451
13,940
28.4
65.7
English, Creole (among Haitian
immigrants)
95.6%
July 10, 1973
Barbados
281,968
431
35.4
73.2
English
99.7%
November 30, 1966
Belize
301,270
22,966
20.1
68.2
Spanish, Creole, Mayan dialects,
English, Garifuna, German, other
76.9%
September 21, 1981
Guyana
770,794
214,970
28.2
66.4
English, Amerindian dialects,
Creole, Caribbean Hindustani, Urdu
98.8%
May 26, 1966
Haiti
8,924,553
27,750
18.5
57.6
French(official), Creole (official)
52.9%
January 1, 1804
Jamaica
2,804,332
10,991
23.4
73.6
English, English patois
87.9%
June 6, 1962
475,996
163,270
27.5
73.5
Dutch (official), English,Sranang
Tongo, Caribbean Hindustani,
Javanese
89.6%
November 25, 1975
1,047,366
5,128
32.3
67.0
English (official), Caribbean
Hindustani, French, Spanish,
Chinese
98.6%
August 31, 1962
Anguilla
Montserrat
Non-ECCU CARICOM members
Suriname
Trinidad and Tobago
Non-ECCU associate CARICOM members
Bermuda
66,536
53
41.0
78.3
English(official), Portuguese
98.0%
June 8, 1968
British Virgin Islands
24,004
153
32.0
77.1
English
97.8%
June 13, 1956
Cayman Islands
47,862
262
37.8
80.3
English
98.0%
January 1, 1959
Turks and Caicos Islands
22,352
430
27.8
75.2
English
98.0%
August 30, 1976
Source: Central Intelligence Agency (CIA) World Factbook (July 2008)
Table 4 Country economic variables
GDP (PPP)
(million $)
GDP - real
growth rate
GDP - per
capita (PPP)
Unemployment
rate
Inflation rate
(consumer prices)
Currency (code)
ECCU members
Antigua and Barbuda
1,189
3.8%
10,900
11.0%
2.8%
East Caribbean dollar (XCD)
Dominica
485
3.2%
3,800
23.0%
-0.1%
East Caribbean dollar (XCD)
Grenada
553
0.9%
3,900
12.5%
3.0%
East Caribbean dollar (XCD)
St. Kitts and Nevis
726
6.0%
8,200
4.5%
8.7%
East Caribbean dollar (XCD)
1,179
5.1%
4,800
20.0%
2.9%
East Caribbean dollar (XCD)
902
4.4%
3,600
15.0%
1.0%
East Caribbean dollar (XCD)
109
10.2%
8,800
8.0%
5.3%
East Caribbean dollar (XCD)
29
-1.0%
3,400
6.0%
2.6%
East Caribbean dollar (XCD)
Bahamas
6,925
2.8%
22,700
7.6%
2.4%
Bahamian dollar (BSD)
Barbados
5,530
4.0%
19,700
10.7%
5.5%
Barbadian dollar (BBD)
Belize
2,336
3.0%
7,800
9.4%
2.8%
Belizean dollar (BZD)
Guyana
St. Lucia
St. Vincent and the Grenadines
Anguilla
Montserrat
Non-ECCU CARICOM members
4,057
4.5%
5,300
9.1%
10.4%
Guyanese dollar (GYD)
Haiti
15,820
3.5%
1,900
67.0%
8.9%
Gourde (HTG)
Jamaica
13,470
1.5%
4,800
10.2%
7.1%
Jamaican dollar (JMD)
3,449
5.1%
7,800
9.5%
9.5%
Surinam dollar (SRD)
22,930
Non-ECCU associate CARICOM members
5.5%
21,700
6.0%
7.6%
Trinidad and Tobago dollar (TTD)
Bermuda
4,500
4.6%
69,900
2.1%
2.8%
Bermudian dollar (BMD)
853
1.0%
38,500
3.6%
2.0%
US dollar (USD)
1,939
0.9%
43,800
4.4%
4.4%
Caymanian dollar (KYD)
216
4.9%
11,500
Source: Central Intelligence Agency (CIA) World Factbook (July 2008)
10.0%
4.0%
US dollar (USD)
Suriname
Trinidad and Tobago
British Virgin Islands
Cayman Islands
Turks and Caicos Islands
Table 5 Major industries
ECCU members
Antigua and Barbuda
tourism, construction, light manufacturing (clothing, alcohol, household appiance.
Dominica
soap, coconut oil, tourism, copra, furniture, cement blocks, shoes
Grenada
food and beverages, textiles, light assembly operations, tourism, construction
Saint Kitts and Nevis
Saint Lucia
tourism, cotton, salt, copra, clothing, footwear, beverages
clothing, assembly of electronic components, beverages, corrugated cardboard boxes, tourism, lime
processing, coconut processing
Saint Vincent and the Grenadines
food processing, cement, furniture, clothing, starch
Anguilla
tourism, boat building, offshore financial services
Montserrat
tourism, rum, textiles, electronic appliances
Non-ECCU CARICOM members
Bahamas
tourism, banking, cement, oil transshipment, salt, rum, aragonite, pharmaceuticals, spiral-welded
steel pipe
Barbados
tourism, sugar, light manufacturing, component assembly for export
Belize
garment production, food processing, tourism, construction, oil
Guyana
bauxite, sugar, rice milling, timber, textiles, gold mining
Haiti
Jamaica
sugar refining, flour milling, textiles, cement, light assembly based on imported parts
tourism, bauxite/alumina, agro processing, light manufactures, rum, cement, metal, paper, chemical
products, telecommunications
Suriname
bauxite and gold mining, alumina production, oil, lumbering, food processing, fishing
Trinidad and Tobago
petroleum, chemicals, tourism, food processing, cement, beverage, cotton textiles
Non-ECCU associate CARICOM members
Bermuda
international business, tourism, light manufacturing
British Virgin Islands
tourism, light industry, construction, rum, concrete block, offshore financial center
Cayman Islands
tourism, banking, insurance and finance, construction, construction materials, furniture
Turks and Caicos Islands
tourism, offshore financial services
Source: Central Intelligence Agency (CIA) World Factbook (July 2008)
Table 8 Regional trade patterns, 1981-2006 percentage of total exports/imports with the world
1981-1985
Export Import
1986-1990
Export Import
1991-1995
Export Import
1996-2000
Export Import
2000-2005
Export Import
2006
Export Import
ECCU members
Within ECCU
7.8
4.3
8.0
3.9
11.4
3.1
12.6
2.7
13.3
2.4
9.6
2.3
29.8
21.6
21.3
14.7
21.8
18.6
29.3
23.3
25.9
24.4
17.6
22.6
With USA
2.8
18.7
14.2
40.7
21.1
34.0
23.5
41.5
25.5
29.0
13.2
23.9
With Japan
0.2
7.6
0.1
5.9
0.2
3.7
0.2
4.6
0.9
3.3
0.4
2.9
Within CARICOM
With Asia
0.0
2.5
0.0
3.0
0.1
2.5
0.1
2.6
3.8
5.6
3.1
10.7
64.2
32.2
61.4
24.6
50.3
29.5
41.1
17.0
33.9
16.4
59.8
27.1
1.4
5.6
1.3
4.2
1.8
5.5
2.5
6.8
2.0
6.9
1.6
6.8
With USA
68.2
32.1
61.2
40.4
38.0
42.3
37.5
42.4
49.7
31.1
48.3
28.8
With Japan
0.7
4.3
2.1
4.5
1.6
8.0
1.1
6.2
0.8
4.9
1.5
6.4
With Asia
0.2
7.3
0.4
4.7
1.8
4.8
0.9
7.2
1.8
12.2
2.8
14.1
12.7
13.8
15.4
15.1
22.0
20.6
22.9
16.9
17.0
17.2
19.3
12.1
6.0
6.0
6.2
5.0
9.5
6.7
14.9
8.0
13.0
8.2
11.5
8.0
With USA
67.3
31.8
59.0
40.5
37.2
41.6
37.0
42.3
49.1
31.0
47.2
28.5
With Japan
0.7
4.4
2.0
4.6
1.5
7.6
1.1
6.0
0.8
4.8
1.5
6.1
With European Union
Non-ECCU CARICOM member
Within CARICOM
With European Union
All CARICOM member
Within CARICOM
With Asia
With European Union
0.2
7.2
0.4
4.6
1.7
4.6
0.8
6.8
1.9
11.7
2.8
13.8
13.4
14.2
17.5
15.8
23.3
21.4
23.5
16.9
17.5
17.1
20.6
13.2
Source: IMF Direction of Trade Statistics, World Development Indicators June 2007
Model
• Shocks are classified as being regional and country-specific (ur
and ud). If the country-specific shocks are prevalent and
uncorrelated across countries, the cost to sustain a currency
area would be prominent.
y   0   1 ( L)u   2 ( L)u
d
t
r
t
d
t
2
3
• where  i ( L)  i 0   i1L   i 2 L   i 3 L  ... is a polynomial
function of the lag operator L
Vector Autoregression (VAR) model
• A 2×2 structural VAR model is used. Consider a two-variable model with
regional and local outputs: yr and yd. They are related to three structural
shocks as follows:
 ytr   A11 ( L)
 d   
 y 
 t   A21 ( L)
A12 ( L)   uty 
  d 
A22 ( L)   ut 
0
1
2 2
...a polynomial function with lag operator L in a
where Aij ( L)  aij  aij L  aij L is
matrix form
Var (ut )  I
Two restrictions
country-specific shocks have no long-run effects on regional output.
A12 (1)  0
where
Aij (1)  aij0  aij1  aij2  ...
Data
• Gross Domestic Production seasonal adjusted (constant 2000 US$)
•
•
•
•
8 ECCU countries
8 non-ECCU CARICOM countries
13 CFA franc zone countries
9 EMU countries and 5 non-EMU European countries
• Data for CFA franc zone countries are taken from WDI (World Bank
Development Indicators 2004).
• data for ECCU, other Caribbean countries, EMU and other developed
countries are retrieved from IFS (International Financial Statistics)
• Data retrieve from both data sets are annual data from 1973 to 2005
• Exports and imports data for ECCU and non-ECCU CARICOM countries
are retrieved from DOTs (Direction of Trade Statistics August,2007)
Table 10 Variance Decomposition for ECCU and Non-ECCU CARICOM
members
Y-D
Years
U-R
U-D
ECCU members
Antigua and Barbuda
Dominica
Grenada
St.Kitts and Nevis
St.Lucia
St. Vincent and the Grenadines
Anguilla
Montserrat
Non-ECCU CARICOM members
Bahamas, The
Barbados
Belize
Guyana
Haiti
Jamaica
Suriname
Trinidad and Tobago
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
0.59
0.81
0.14
0.27
0.35
0.39
0.53
0.79
0.09
0.23
0.40
0.56
0.63
0.65
0.21
0.30
0.41
0.19
0.86
0.73
0.65
0.61
0.47
0.21
0.91
0.77
0.60
0.44
0.37
0.35
0.79
0.70
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
0.11
0.12
0.10
0.47
0.13
0.42
0.42
0.22
0.31
0.38
0.20
0.24
0.71
0.85
0.44
0.46
0.89
0.88
0.90
0.53
0.87
0.58
0.58
0.78
0.69
0.62
0.80
0.76
0.29
0.15
0.56
0.54
Table 11 Variance Decomposition for CFA franc zone members
Years
Y-D
U-R
U-D
2
10
0.10
0.11
0.90
0.89
Burkina Faso
2
10
0.03
0.06
0.97
0.94
Cote d'Ivoire
2
10
0.44
0.49
0.56
0.51
Guinea - Bissau
2
10
0.60
0.61
0.40
0.39
Mali
2
10
0.26
0.37
0.74
0.63
Niger
2
10
0.00
0.01
1.00
0.99
Senegal
2
10
0.05
0.07
0.95
0.93
Togo
2
10
0.11
0.16
0.89
0.84
Cameroon
2
10
0.14
0.29
0.86
0.71
Central African Republic
2
10
0.06
0.06
0.94
0.94
Chad
2
10
0.03
0.06
0.97
0.94
Congo, Republic
2
10
0.09
0.08
0.91
0.92
Gabon
2
10
0.04
0.23
0.96
0.77
CFA franc zone countries
Benin
Table 12 Variance Decomposition for EMU and Non-EMU European
countries
Y-D
Years
U-R
U-D
EMU Countries
Austria
Finland
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Non-EMU Countries
Denmark
Norway
Sweden
Switzerland
UK
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
0.70
0.71
0.15
0.14
0.43
0.44
0.77
0.62
0.14
0.13
0.21
0.21
0.38
0.38
0.35
0.46
0.70
0.69
0.30
0.29
0.85
0.86
0.57
0.58
0.23
0.38
0.86
0.87
0.79
0.79
0.62
0.62
0.65
0.54
0.30
0.31
2
10
2
10
2
10
2
10
2
10
0.52
0.57
0.29
0.35
0.93
0.80
0.34
0.42
0.58
0.61
0.48
0.43
0.71
0.65
0.07
0.20
0.66
0.58
0.42
0.39
Table 13 Robustness Test for ECCU and Non-ECCU CARICOM members
Y-D
Years
U-R
U-D
ECCU members
Antigua and Barbuda
Dominica
Grenada
St.Kitts and Nevis
St.Lucia
St. Vincent and the Grenadines
Anguilla
Montserrat
Non-ECCU CARICOM members
Bahamas, The
Barbados
Belize
Guyana
Haiti
Jamaica
Suriname
Trinidad and Tobago
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
0.79
0.85
0.75
0.82
0.32
0.45
0.60
0.67
0.50
0.60
0.77
0.82
0.71
0.72
0.23
0.24
0.21
0.15
0.25
0.18
0.68
0.55
0.40
0.33
0.50
0.40
0.23
0.18
0.29
0.28
0.77
0.76
2
10
2
10
2
10
2
10
2
10
2
10
2
10
2
10
0.32
0.36
0.26
0.28
0.19
0.21
0.09
0.24
0.17
0.29
0.07
0.26
0.12
0.22
0.16
0.40
0.68
0.64
0.74
0.72
0.81
0.79
0.91
0.76
0.83
0.71
0.93
0.74
0.88
0.78
0.84
0.60
Conclusion
• The ECCU countries are more strongly influenced by
regional shocks compared to those of CFA franc zone
where country-specific shocks are dominant.
• The ECCU countries are structurally similar to each other
and thus more likely to be subject to symmetric shocks.
• Implications:
The monetary and exchange arrangements in ECCU appear
to have well served the region and group of countries is
more likely to be an optimum currency area.
Table 1. Regional Trade Patterns, 1980 to 2007 (Percentage of Total Exports/Imports with the World)
1980
1990
1995
Export
Import
Export
Import
Export
2000
Import
Export
2006
Import
Export
Import
ASEAN
Within ASEAN
21.2
16.8
25.3
19.7
31.7
23.5
29.8
27.8
29.2
29.3
With USA
16.3
15.3
19.4
14.4
18.4
13.8
19.0
14.0
14.0
9.7
With Japan
29.5
22.1
18.9
23.1
14.3
23.7
13.4
19.1
10.4
12.1
With Euro Area
13.1
14.4
16.0
15.7
14.7
15.1
15.0
11.1
12.6
9.8
Within East Asia
33.6
31.2
36.5
38.8
44.6
45.7
42.5
48.0
46.0
48.8
With USA
21.1
17.0
25.4
17.5
22.0
16.2
23.7
14.1
18.1
9.1
With Japan
11.6
11.6
8.5
13.0
8.5
15.4
8.6
12.7
7.1
10.7
With Euro Area
16.0
10.0
17.9
15.0
15.1
14.3
15.8
11.5
15.4
10.1
Within East Asia / Pacific
37.0
36.6
39.5
42.3
47.1
48.2
45.0
50.6
48.6
51.9
With USA
20.2
17.3
24.4
17.9
21.2
16.5
23.1
14.5
17.6
9.4
With Japan
11.1
11.0
8.4
12.4
8.6
14.9
8.6
12.3
7.1
10.3
With Euro Area
16.0
11.4
17.6
15.8
14.9
14.9
15.7
12.1
15.3
10.7
61.3
54.2
66.9
64.0
66.4
64.4
67.7
62.5
67.7
63.1
With USA
5.3
8.2
6.9
7.3
6.5
7.2
9.1
7.9
7.5
4.8
With Asia
3.2
3.6
4.4
5.3
6.6
7.3
5.3
9.1
5.6
10.5
East Asia
East Asia/Pacific
Euro Area
Within Euro Area
1 ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam
2 East Asia: ASEAN plus Japan, China, P.R.: mainland, China, P.R.: Hong Kong, Korea
3 East Asia and Pacific Area : East Asia plus Australia, New Zealand
4 Euro Area: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal Spain.
Source: IMF Direction of Trade Statistics, World Development Indicators June 2007
Table 5. Asia and Pacific Stock Market Price Indices
Price index
Full name
Japan
Nikkei 225
Nikkei heikin kabuka
Unit
Yen
China
SSEC
Renminbi
Korea
KOSPI
Shanghai Stock Exchange
Composite Index
Korea Composite Stock Price
Index
Singapore
STI
Hong Kong
Starting date
September 7, 1950
Won
Components
225 companies in 36
industries
Top 50 companies by market
capitalization
Over 700 components
Straits Times Index
SGD
50 representative companies
September 1, 1998(a)
HSI
Hang Seng Index
HK$
40 largest companies
November 24, 1969
Taiwan
TAIEX
Taiwan Capitalization Weighted
Stock Index
TW$
All listed common shares
February 9, 1962
Malaysia
KLCI
Kuala Lumpur Composite Index
Ringgit
100 companies from main
board
December 14, 1976
Indonesia
IHSG/JSXC
Indeks Harga Saham Gabungan
Jakarta Stock Exchange composite
Rupiah
336 companies
1977
Thailand
SETI
Stock Exchange of Thailand index
Baht
all common stocks (b)
April 30, 1975
Philippines
PSECI/PHISIX/PSEi
Philippine Stock Exchange
Composite index
Peso
31 companies
August 8, 1927
New Zealand
NZSX50
New Zealand Stock Exchange
index
NZD
50 companies
June 24 1991
Australia
AOI
All Ordinaries Index
AUD
all ordinary (or common)
shares
January 1, 1980
December 19, 1990
January 4, 1980
Notes: (a) STI replaced the Straits Times Industrials Index (STII) after September 1, 1998; (b) including unit trusts of property funds
Table 6. European Stock Market Price Indices
Austria
Price index
ATX
Full names
Austrian Traded Index
Unit
Austrian Schilling/Euro
Components
21 continuously traded Austrian companies listed on the
Vienna Stock Exchange
Starting time
Jan 2, 1991
Belgium
Euronext 100
Euronext Brussels
Belgian Franc/Euro
Market capitalization index of the 150 next largest stocks
Sep 22, 2000
Denmark
KFX
Danish Krone
20 Danish companies
July 3, 1989
Finland
HEX-20
Copenhagen Stock
Exchange Index
Helsinki Stock Exchange
Index
Finnish Markka/Euro
Shares of the top 20 Finnish companies
Dec 28, 1990
France
CAC40
Compagnie des Agents de
Change 40 index
French Franc/Euro
40 French companies listed on the Paris Stock Exchange
that are also traded on the options market.
Dec 31, 1987
Germany
DAX
Deutscher Aktienindex
German Mark/Euro
30 German companies
Dec 30, 1987
Greece
Athex Composite index 140
Greek Drachma/Euro
140 Greek companies
1996
Ireland
FTSE/Athex
140
ISEQ
Irish Stock Exchange
Irish Pound/Euro
the index is complied as a stock capitalisation weighted
average
Jan 4, 1988
Italy
MIB 30
Italian Lira/Euro
30 Italian companies
Dec 31, 1992
Netherlands
AEX
Milano Italia Borsa Index
30
European Options
Exchange index
Dutch Gulden/Euro
25 leading Dutch companies representative for the general
trend on the Amsterdam Stock Exchange
1983
Portugal
PSI-20
Portuguese Stock Index
Portuguese Escudo/Euro
20 Portuguese companies
Dec 31, 1992
Spain
IBEX 35
Lberia Index
Spanish Peseta/Euro
35 Spanish companies
Dec 29, 1989
Norway
OBX
Oslo Stock Exchange Index
Norwegian Krone
25 Norwegian companies
Jan 1, 1987
Sweden
SX-16
Swedish Krona
Shares of the top 16 Swedish companies
Dec 31, 1979
Switzerland
SMI
Stockholm Stock Exchange
16 Index
Swiss Market Index
Swiss Franc
21 Swiss companies
June 30, 1988
United
Kingdom
FT-SE 100
Financial Times Stock
Exchange 100 Index
Pound Sterling
Shares of the top 100 UK companies ranked by market
capitalization
Dec 31, 1983
Source: Wikipedia, individual stock exchange websites
Data
• Major Stock Market Price index data are collected and
transformed into U.S. dollar terms
• 12 countries in East Asia.
• 16 European countries
– Data is weekly from 1989 to 2007
– Per I: 1989:7:1 - 1991:6:30; Per II: 1991:7:1 - 1993:6:30; Per III:
1993:7:1 - 1995:6:30; Per IV: 1995:7:1 - 1997:6:30;
Per V: 1999:1:1 - 2000:12:31; Per VI: 2001:1:1 - 2002:12:31; Per
VII: 2003:1:1 - 2004:12:31; Per VIII: 2005:1:1 - 2006:12:31
– The weights are based on the GDP, PPP (in constant 2000 $)
Table 9. Variance Decomposition of domestic index in sub-periods for European countries
Per I Per II
Per III
Per IV
Per V
Per VI
Per VII
Per VIII
Average
Austria
U-G
U-R
U-D
0.17
0.24
0.58
0.06
0.27
0.67
0.07
0.15
0.78
0.13
0.18
0.69
0.11
0.11
0.78
0.02
0.39
0.59
0.04
0.37
0.59
0.33
0.38
0.29
0.12
0.26
0.62
Belgium
U-G
U-R
U-D
0.33
0.46
0.21
0.02
0.24
0.74
0.14
0.26
0.60
0.08
0.18
0.74
0.11
0.10
0.79
0.45
0.29
0.26
0.41
0.45
0.14
0.37
0.55
0.09
0.24
0.32
0.45
Denmark
U-G
U-R
U-D
0.31
0.33
0.36
0.00
0.23
0.76
0.16
0.20
0.64
0.21
0.25
0.54
0.23
0.11
0.65
0.41
0.19
0.40
0.33
0.12
0.54
0.25
0.53
0.23
0.24
0.25
0.52
Finland
U-G
U-R
U-D
0.10
0.20
0.70
0.01
0.09
0.89
0.13
0.24
0.63
0.19
0.02
0.79
0.38
0.10
0.53
0.36
0.01
0.63
0.50
0.02
0.47
0.48
0.20
0.31
0.27
0.11
0.62
France
U-G
U-R
U-D
0.29
0.55
0.17
0.03
0.54
0.42
0.20
0.45
0.35
0.18
0.41
0.41
0.48
0.30
0.22
0.75
0.22
0.03
0.63
0.33
0.04
0.45
0.41
0.14
0.38
0.40
0.22
Germany
U-G
U-R
U-D
0.26
0.44
0.31
0.01
0.39
0.60
0.08
0.26
0.66
0.17
0.42
0.41
0.42
0.40
0.18
0.75
0.17
0.08
0.47
0.13
0.41
0.52
0.33
0.14
0.34
0.32
0.35
Greece
U-G
U-R
U-D
0.01
0.09
0.89
0.01
0.15
0.84
0.06
0.08
0.87
0.00
0.13
0.87
0.01
0.08
0.91
0.17
0.21
0.61
0.14
0.34
0.52
0.20
0.32
0.48
0.08
0.18
0.75
Ireland
U-G
U-R
U-D
0.12
0.25
0.63
0.05
0.30
0.65
0.25
0.15
0.60
0.17
0.29
0.54
0.18
0.08
0.73
0.31
0.07
0.62
0.38
0.14
0.48
0.24
0.41
0.35
0.21
0.21
0.58
Italy
U-G
U-R
U-D
0.16
0.19
0.64
0.02
0.10
0.88
0.00
0.39
0.61
0.08
0.10
0.82
0.16
0.52
0.32
0.44
0.17
0.39
0.38
0.44
0.18
0.39
0.34
0.28
0.20
0.28
0.52
Netherlands
U-G
U-R
U-D
0.25
0.29
0.46
0.01
0.45
0.54
0.35
0.46
0.19
0.29
0.30
0.41
0.40
0.31
0.29
0.66
0.15
0.19
0.68
0.26
0.06
0.49
0.38
0.14
0.39
0.33
0.29
Portugal
U-G
U-R
U-D
0.21
0.10
0.69
0.01
0.26
0.73
0.09
0.15
0.76
0.08
0.37
0.54
0.06
0.41
0.52
0.26
0.57
0.17
0.14
0.38
0.48
0.26
0.32
0.42
0.14
0.32
0.54
Spain
U-G
U-R
U-D
0.20
0.36
0.45
0.15
0.31
0.54
0.20
0.18
0.62
0.09
0.25
0.66
0.35
0.38
0.27
0.43
0.28
0.29
0.38
0.25
0.37
0.50
0.29
0.21
0.29
0.29
0.43
Norway
U-G
U-R
U-D
0.08
0.10
0.82
0.05
0.16
0.79
0.16
0.17
0.66
0.13
0.21
0.66
0.22
0.06
0.72
0.26
0.14
0.60
0.18
0.33
0.48
0.19
0.38
0.43
0.16
0.19
0.65
Sweden
U-G
U-R
U-D
0.29
0.29
0.42
0.03
0.28
0.70
0.13
0.18
0.69
0.17
0.16
0.67
0.31
0.25
0.44
0.55
0.09
0.36
0.49
0.28
0.22
0.42
0.44
0.14
0.30
0.25
0.46
Switzerland
U-G
U-R
U-D
0.31
0.37
0.32
0.02
0.43
0.54
0.14
0.20
0.66
0.06
0.18
0.75
0.18
0.18
0.64
0.62
0.21
0.17
0.47
0.17
0.36
0.42
0.33
0.26
0.28
0.26
0.46
United Kingdom
U-G
U-R
U-D
0.17
0.42
0.41
0.04
0.41
0.55
0.35
0.33
0.32
0.18
0.25
0.57
0.49
0.05
0.46
0.68
0.11
0.22
0.56
0.12
0.31
0.44
0.30
0.26
0.36
0.25
0.39
Average
U-G
U-R
U-D
0.36
0.29
0.50
0.36
0.29
0.68
0.36
0.24
0.60
0.35
0.23
0.63
0.35
0.22
0.53
0.32
0.20
0.35
0.34
0.26
0.35
0.34
0.37
0.26
0.25
0.26
0.49
Notes: Per I: 1989:7:1 - 1991:6:30; Per II: 1991:7:1 - 1993:6:30; Per III: 1993:7:1 - 1995:6:30; Per IV: 1995:7:1 - 1997:6:30;
Per V: 1999:1:1 - 2000:12:31; Per VI: 2001:1:1 - 2002:12:31; Per VII: 2003:1:1 - 2004:12:311; Per VIII: 2005:1:1 - 2006:12:31;
Table 10. Variance Decomposition of domestic index in sub-periods for Asian countries
Per I Per II Per III Per IV Per V Per VI Per VII
Per VIII
Average
Japan
U-G
U-R
U-D
0.19
0.01
0.79
0.07
0.00
0.93
0.05
0.05
0.90
0.11
0.02
0.87
0.22
0.02
0.75
0.18
0.05
0.78
0.14
0.05
0.81
0.18
0.05
0.77
0.14
0.03
0.83
China
U-G
U-R
U-D
0.01
0.10
0.88
0.01
0.01
0.98
0.01
0.07
0.92
0.13
0.05
0.82
0.01
0.04
0.95
0.01
0.04
0.95
0.03
0.02
0.95
0.09
0.00
0.91
0.04
0.04
0.92
Korea
U-G
U-R
U-D
0.05
0.01
0.94
0.01
0.01
0.97
0.02
0.02
0.96
0.04
0.03
0.93
0.25
0.05
0.71
0.34
0.07
0.59
0.21
0.00
0.78
0.18
0.08
0.75
0.14
0.03
0.83
Hong Kong
U-G
U-R
U-D
0.24
0.02
0.74
0.03
0.01
0.95
0.19
0.01
0.79
0.22
0.03
0.75
0.43
0.07
0.50
0.39
0.07
0.53
0.33
0.09
0.58
0.35
0.03
0.61
0.27
0.04
0.68
Singapore
U-G
U-R
U-D
0.42
0.03
0.55
0.07
0.08
0.85
0.14
0.02
0.84
0.06
0.01
0.93
0.23
0.06
0.70
0.33
0.01
0.67
0.18
0.14
0.68
0.32
0.22
0.45
0.22
0.07
0.71
Malaysia
U-G
U-R
U-D
0.17
0.01
0.82
0.01
0.00
0.98
0.18
0.00
0.82
0.09
0.05
0.86
0.08
0.01
0.91
0.07
0.01
0.91
0.04
0.22
0.74
0.30
0.05
0.66
0.12
0.04
0.84
Taiwan
U-G
U-R
U-D
0.01
0.01
0.98
0.01
0.00
0.99
0.02
0.00
0.97
0.01
0.03
0.96
0.09
0.15
0.76
0.25
0.02
0.72
0.17
0.06
0.77
0.19
0.06
0.75
0.09
0.04
0.86
Indonesia
U-G
U-R
U-D
0.01
0.01
0.99
0.02
0.02
0.96
0.09
0.00
0.91
0.06
0.01
0.93
0.06
0.03
0.91
0.01
0.01
0.98
0.10
0.05
0.85
0.16
0.06
0.78
0.06
0.02
0.91
Thailand
U-G
U-R
U-D
0.28
0.01
0.71
0.09
0.05
0.86
0.21
0.00
0.79
0.02
0.02
0.95
0.26
0.02
0.72
0.16
0.08
0.76
0.14
0.11
0.75
0.17
0.13
0.71
0.17
0.05
0.78
Philippines
U-G
U-R
U-D
0.19
0.00
0.81
0.10
0.01
0.89
0.22
0.01
0.77
0.09
0.08
0.83
0.29
0.01
0.70
0.08
0.01
0.91
0.17
0.03
0.80
0.21
0.11
0.67
0.17
0.03
0.80
Australia
U-G
U-R
U-D
0.05
0.02
0.93
0.04
0.09
0.87
0.11
0.00
0.89
0.09
0.03
0.89
0.18
0.02
0.81
0.29
0.03
0.68
0.17
0.02
0.81
0.34
0.05
0.61
0.16
0.03
0.81
New Zealand
U-G
U-R
U-D
0.12
0.03
0.84
0.03
0.13
0.84
0.21
0.01
0.79
0.02
0.02
0.96
0.09
0.04
0.81
0.31
0.01
0.69
0.07
0.04
0.89
0.14
0.10
0.76
0.12
0.05
0.82
Average
U-G
U-R
U-D
0.15
0.02
0.83
0.04
0.03
0.92
0.12
0.02
0.86
0.08
0.03
0.89
0.18
0.04
0.77
0.20
0.03
0.76
0.15
0.07
0.78
0.22
0.08
0.70
0.14
0.04
0.82
Table 11. Robustness test 1: Variance Decomposition of domestic index in sub-periods for Asian countries
Per I Per II Per III Per IV Per V Per VI Per VII
Per VIII
Average
China
U-G
U-R
U-D
0.00
0.00
0.99
0.01
0.01
0.97
0.05
0.03
0.92
0.01
0.11
0.88
0.02
0.00
0.98
0.03
0.00
0.96
0.03
0.08
0.90
0.06
0.10
0.84
0.03
0.04
0.93
Korea
U-G
U-R
U-D
0.13
0.00
0.87
0.07
0.07
0.87
0.01
0.02
0.97
0.05
0.03
0.92
0.15
0.04
0.82
0.21
0.07
0.72
0.10
0.06
0.84
0.27
0.06
0.67
0.12
0.04
0.84
Hong Kong
U-G
U-R
U-D
0.23
0.00
0.77
0.00
0.01
0.99
0.01
0.04
0.95
0.14
0.03
0.83
0.30
0.18
0.52
0.26
0.15
0.59
0.26
0.06
0.68
0.13
0.26
0.61
0.17
0.09
0.74
Singapore
U-G
U-R
U-D
0.37
0.00
0.63
0.12
0.04
0.84
0.08
0.00
0.92
0.05
0.04
0.91
0.12
0.23
0.65
0.17
0.15
0.68
0.31
0.16
0.53
0.48
0.15
0.38
0.21
0.10
0.69
Malaysia
U-G
U-R
U-D
0.17
0.00
0.83
0.04
0.03
0.93
0.01
0.05
0.94
0.09
0.04
0.87
0.04
0.11
0.85
0.07
0.20
0.73
0.24
0.16
0.59
0.12
0.26
0.62
0.10
0.11
0.80
Taiwan
U-G
U-R
U-D
0.01
0.00
0.98
0.03
0.01
0.96
0.02
0.00
0.97
0.01
0.06
0.93
0.17
0.08
0.75
0.06
0.07
0.87
0.12
0.05
0.83
0.21
0.05
0.74
0.08
0.04
0.88
Indonesia
U-G
U-R
U-D
0.05
0.04
0.92
0.05
0.00
0.94
0.00
0.02
0.98
0.02
0.04
0.95
0.03
0.09
0.88
0.03
0.01
0.96
0.12
0.13
0.75
0.12
0.06
0.83
0.05
0.05
0.90
Thailand
U-G
U-R
U-D
0.09
0.00
0.90
0.05
0.00
0.94
0.03
0.03
0.94
0.01
0.05
0.94
0.12
0.22
0.66
0.22
0.13
0.66
0.21
0.14
0.65
0.19
0.07
0.74
0.12
0.08
0.80
Philippines
U-G
U-R
U-D
0.06
0.01
0.93
0.01
0.09
0.90
0.00
0.00
1.00
0.02
0.11
0.86
0.05
0.23
0.72
0.06
0.10
0.84
0.08
0.03
0.88
0.29
0.16
0.55
0.07
0.09
0.84
Australia
U-G
U-R
U-D
0.03
0.01
0.96
0.07
0.04
0.89
0.21
0.02
0.77
0.06
0.10
0.84
0.09
0.03
0.88
0.08
0.07
0.85
0.12
0.19
0.70
0.21
0.11
0.68
0.11
0.07
0.82
New Zealand
U-G
U-R
U-D
0.13
0.00
0.87
0.10
0.07
0.82
0.20
0.00
0.79
0.02
0.00
0.98
0.04
0.04
0.92
0.11
0.08
0.81
0.08
0.26
0.66
0.14
0.14
0.72
0.10
0.07
0.82
Average
U-G
U-R
U-D
0.12
0.01
0.88
0.05
0.03
0.91
0.06
0.02
0.92
0.04
0.06
0.90
0.10
0.11
0.78
0.12
0.09
0.79
0.15
0.12
0.73
0.20
0.13
0.67
0.11
0.07
0.82
Table 12. Robustness test 2: Variance Decomposition of domestic index in sub-periods for Asian countries
Per I Per II Per III Per IV Per V Per VI
Per VII
Per VIII
Average
Japan
U-G
U-R
U-D
0.00
0.07
0.93
0.01
0.24
0.75
0.04
0.00
0.95
0.00
0.16
0.84
0.00
0.19
0.81
0.01
0.22
0.77
0.00
0.22
0.78
0.04
0.28
0.68
0.01
0.17
0.81
Korea
U-G
U-R
U-D
0.00
0.13
0.87
0.08
0.07
0.85
0.01
0.02
0.97
0.03
0.06
0.91
0.00
0.20
0.80
0.03
0.31
0.67
0.02
0.12
0.86
0.04
0.24
0.72
0.03
0.14
0.83
Hong Kong
U-G
U-R
U-D
0.01
0.31
0.68
0.02
0.00
0.98
0.02
0.02
0.97
0.07
0.17
0.76
0.03
0.37
0.60
0.01
0.30
0.69
0.01
0.27
0.72
0.19
0.09
0.71
0.05
0.19
0.76
Singapore
U-G
U-R
U-D
0.01
0.46
0.53
0.02
0.15
0.83
0.00
0.03
0.96
0.04
0.06
0.90
0.01
0.23
0.76
0.01
0.25
0.74
0.10
0.30
0.60
0.15
0.42
0.44
0.04
0.24
0.72
Malaysia
U-G
U-R
U-D
0.00
0.23
0.77
0.07
0.05
0.88
0.09
0.01
0.90
0.06
0.10
0.84
0.01
0.09
0.91
0.00
0.11
0.88
0.10
0.24
0.67
0.18
0.07
0.75
0.06
0.11
0.83
Taiwan
U-G
U-R
U-D
0.00
0.02
0.98
0.01
0.03
0.97
0.02
0.00
0.97
0.03
0.01
0.96
0.09
0.18
0.73
0.01
0.11
0.88
0.00
0.16
0.84
0.06
0.21
0.73
0.03
0.09
0.88
Indonesia
U-G
U-R
U-D
0.03
0.03
0.94
0.00
0.05
0.95
0.08
0.00
0.92
0.03
0.03
0.94
0.01
0.06
0.94
0.01
0.03
0.96
0.05
0.12
0.83
0.03
0.11
0.86
0.03
0.05
0.92
Thailand
U-G
U-R
U-D
0.00
0.13
0.86
0.01
0.05
0.95
0.01
0.02
0.97
0.03
0.01
0.96
0.01
0.19
0.80
0.00
0.34
0.66
0.07
0.19
0.74
0.06
0.20
0.74
0.02
0.14
0.84
Philippines
U-G
U-R
U-D
0.02
0.08
0.90
0.07
0.01
0.93
0.04
0.00
0.96
0.15
0.03
0.83
0.01
0.13
0.85
0.01
0.10
0.89
0.01
0.07
0.92
0.11
0.25
0.64
0.05
0.08
0.87
Australia
U-G
U-R
U-D
0.02
0.04
0.94
0.06
0.07
0.88
0.02
0.02
0.96
0.12
0.09
0.79
0.04
0.17
0.79
0.00
0.14
0.85
0.04
0.12
0.84
0.14
0.15
0.71
0.06
0.10
0.85
New Zealand
U-G
U-R
U-D
0.00
0.18
0.82
0.07
0.09
0.84
0.01
0.06
0.93
0.00
0.02
0.98
0.06
0.06
0.87
0.02
0.22
0.76
0.06
0.06
0.87
0.13
0.12
0.75
0.04
0.10
0.85
Average
U-G
U-R
U-D
0.01
0.15
0.84
0.04
0.07
0.89
0.03
0.02
0.95
0.05
0.07
0.88
0.02
0.17
0.81
0.01
0.19
0.80
0.04
0.17
0.79
0.10
0.19
0.70
0.04
0.13
0.83
Conclusion
• Country-specific shocks are still dominant in East Asian
stock markets.
• External shocks that combine both global and regional
shocks appear to take over the dominant position in
European countries.
• Despite years of efforts toward liberalization and financial
integration in the region, countries in East Asia are subject
to asymmetric shocks.
• Theory of optimum currency area would predict that
pegging to the same currency would be more costly in East
Asia than in European countries. A flexible exchange rate
regime might be more desirable in the foreseeable future.
• Thank you for your advice!
• Backup slides:
Parity
Creation of the CFA
Franc
December 26, 1945
1 CFAF = 1.70 FF
Devaluation of the
French Franc
October 17, 1948
1 CFAF = 2.00 FF
Institution of the new 1958
French Franc
Devaluation of the
CFA Franc
January 12, 1994
1 CFAF = 0.02 FF
1 CFAF = 0.01 FF
Exchange rate today
• Tuesday, July 1st, 2008
• 1 CFA Franc BCEAO = 0.001524Euro
1 Euro (EUR) = 655.957 CFA Franc BCEAO (XOF)
• 1 CFA Franc BEAC = 0.001524 Euro
1 Euro (EUR) = 655.957 CFA Franc BEAC (XAF)
• 1 USD = 415.096 CFA franc
Major Export Items for CFA franc zone countries
Benin
cotton, crude oil, palm products, cocoa
Burkina Faso
cotton, livestock, gold
Cameroon
crude oil and petroleum products, lumber, cocoa beans, aluminum, coffee, cotton
Cent Afr Rep
diamonds, timber, cotton, coffee, tobacco
Chad
cotton, cattle, gum arabic, oil
Congo, Rep
petroleum, lumber, plywood, sugar, cocoa, coffee, diamonds
Cote d’Ivoire
cocoa, coffee, timber, petroleum, cotton, bananas, pineapples, palm oil, fish
Equatorial Guinea
petroleum, methanol, timber, cocoa
Gabon
crude oil, timber, manganese, uranium (2001)
Guinea-Bissau
cashew nuts, shrimp, peanuts, palm kernels, sawn lumber
Mali
cotton, gold, livestock
Niger
uranium ore, livestock, cowpeas, onions
Senegal
fish, groundnuts (peanuts), petroleum products, phosphates, cotton
Togo
cotton, phosphates, coffee, cocoa
Pop
GNI pc /
PPP GNI pc
GDP
Growth
Rate
Structure Growth of
of Output
M’dise
Exports
Inflation
(GDP
Deflator)
Goods
Exports /
GDP (%)
Growth in real
Trade – Growth in
real GDP
2006 (mil)
2003 (US$)
’80-90 /
’90-03
2003
’80-90 /
’90-02
’80-90 /
’90-03
2003
‘90-03
Benin
7.76
440 / 1110
2.5 / 5.0
36 8
0.8 / 2.4
1.7 / 7.0
37.4
-2.6
Burkina Faso
13.90
300 / 1170
3.6 / 4.2
31 13
11.3 / 10.0
3.3 / 4.7
28.0
-2.0
Cameroon
17.34
630 / 1990
3.4 / 2.7
44 9
2.1 / 0.3
5.6 / 4.3
36.6
2.2
Cent Afr Rep
4.30
260 / 1080
1.4 / 1.8
48 11a
16.9 / 2.4
7.9 / 3.9
20.4
--
Chad
9.94
260 / 1080
6.1 / 3.1
46 12
-0.2 / 1.5
1.4 / 6.7
42.6
3.8
Congo, Rep
4.70
650 / 730
3.3 / 1.8
6 6
5.6 / 7.7
0.5 / 7.9
19.4
2.7
Cote d’Ivoire
17.66
5370 / 10610
0.7 / 2.4
26 11
4.5 / 5.3
2.8 / 7.3
75.3
0.1
Equatorial Guinea
0.54
14153 / 50200
Gabon
1.42
3340 / 5500
0.9 / 2.3
8 5
2.1 / 0.6
1.8 / 5.1
59.7
-1.6
Guinea-Bissau
1.44
140 / 680
4.0 / 0.4
69 10
13.1 / 12.2
57.4 / 22.8
87.6
4.0
Mali
11.72
187 / 960
0.8 / 4.9
38 3
11.1 / 7.6
4.5 / 6.0
50.4
2.2
Niger
12.53
197 / 830
-0.1 / 2.8
40 7
3.1 / 0.0
1.9 / 5.2
32.6
--
Senegal
11.99
540 / 1620
3.1 / 4.0
17 13
9.8 / 3.6
6.5 / 3.8
56.9
-0.9
Togo
5.55
310 / 1640
1.7 / 3.1
41 9
7.1 / 5.3
4.8 / 5.4
57.3
-1.5
World
5510 / 8190
3.3 / 2.8
4 18
41.5
--
Low Income
440 / 4877
4.4 / 4.7
24 14
34.9
--
Table 2 Economic Integration in Caribbean
Countries
Antigua and Barbuda
CARICOM
OECS
ECCU
CSME
LDCs
x
x
x
x
x
x
x
Anguilla
Bahamas
x
Barbados
x
x
Belize
x
x
x
British Virgin Islands
WDCs
x
x
Dominica
x
x
x
x
x
Grenada
x
x
x
x
x
Guyana
x
Haiti
x
Jamaica
x
Montserrat
x
x
x
St. Kitts and Nevis
x
x
x
x
x
St. Lucia
x
x
x
x
x
St. Vincent and the Grenadines
x
x
x
x
x
Suriname
x
x
x
Trinidad and Tobago
x
x
x
Note: x represents the full membership of the relative grouping
x
x
x
x
x