This paper empirically examines how closely East Asian economies move
together in response to world, regional and country shocks, with a view to
gauging the feasibility of a regional currency union. Unlike previous studies,
a block vector autoregression (VAR) model is employed to analyze a large set
of macroeconomic variables for 10 major countries in the region. Results
suggest that regional GDP shocks play a pivotal role in accounting for the
variation in individual countries’ GDP. The majority of the GDPs in East Asia
exhibit similar responses to the two major determinants of regional and world
GDP shocks. Overall, the evidence presents positively for consideration of a
regional currency union in East Asia. For comparison, the paper also
estimates the degree of business cycle synchronization across Eurozone
countries for the period prior to the launch of the euro in 1999.