The Effects of Foreign Shock on the Gross Domestic Products of 3 East Asian and 3 European Countries

Abstract

In this paper, I attempt to determine the possibility of achieving a currency union in East Asia. In order to achieve the purpose, I investigate the effects of a foreign shock, in particular the change in the GDP of the United States of America, on the GDPs of 3 East Asian and 3 European countries. The responses of 3 East Asian countries to the change in the GDP of the United States of America from 1980 through 1998 were relatively different from each other in both size and direction. However, an analysis of 3 East Asian countries from 1990 through 2008 finds that the responses became similar, and the same was observed in major European countries. Therefore, there may not be a need to have an individual monetary policy against the change in the GDP of the United States of America and the cost of using a single currency can be reduced. A comparison of the 3 East Asian and the 3 European countries show that the present conditions in the East Asian countries may not favor the achievement of a currency union. However, the possibility of achieving a currency union in East Asia in the future is increasing.