Asian currency union? An investigation into China's membership with other Asian countries

Abstract

This paper applies Optimum Currency Area (OCA) theory to investigate the suitability of Asian currency union and its membership, in which China is taken as the central country. Cluster analysis is applied for this study. Both hierarchical clustering and fuzzy clustering approaches are used. The study finds that Japan, Korea, Hong Kong, Malaysia, Philippines, Singapore, Thailand, Cambodia and Vietnam are most converged with China, and these countries are more likely to be the member countries of the Asian Currency Union.

Keywords:

• Asian currency union
• China
• OCA theory
• cluster analysis

Notes

Notes

1. We take the dissimilarity coefficient or distance, d(j,k) between two objects X_j and X_k , to be defined by the Euclidean distance.

2. It is assumed, like most studies do, that there is no structure change for the time series data and the underlining data generating process for each variable remains unchanged.