tailieunhanh - Trade and Financial Integration in East Asia: Effects on Co-movements

As part of its mandate, the Financial Stability Board (FSB) monitors market developments and advises on their implications for regulatory policy1 . In doing so, it seeks to identify potential vulnerabilities and the actions that may be needed to address them. The recent rapid growth and innovation in the market for Exchange Traded Funds (ETFs) is a development that the FSB believes warrants increased attention by regulatory and supervisory authorities, as well as by the ETF industry, including providers, market-makers and investors. This note highlights a number of recent developments that call for such attention. ETFs were created in the early. | The World Economy 2006 doi Trade and Financial Integration in East Asia Effects on Co-movements Kwanho Shin 1 and Chan-Hyun Sohn2 1Korea University and Claremont McKenna College and 2Kangwon National University 1. INTRODUCTION AW number of East Asian countries are seeking economic integration in various ways. Trade integration is one avenue. For example aside from the already established ASEAN free trade arrangement both China and Japan show much interest in forming free trade agreements with Korea as well as with ASEAN The other avenue is financial integration. After the sudden exchange crisis of 1997 East Asian countries are also seeking deepening financial cooperation as indicated by the discussions on the Chiang Mai Initiative and on the Asian bond market. What are the effects of trade and financial integration in East Asia In this paper we explore three important areas where trade and financial integration can have an influence. First we examine how trade and financial integration affects business cycle co-movements in the region. Second we investigate how trade and financial integration affects the extent of risk sharing across countries by comparing its impact on consumption co-movements with output co-movements. Finally we examine how trade and financial integration affects price co-movements across countries. By analysing the changed patterns of various co-movements we can also gauge how they in turn influence the prospects of further integration in East Asia. For example how synchronised business cycles of output have important implications for forming an extreme form of integration a single market and single currency area namely a monetary union. Since members of monetary union This paper was prepared for the Joint YNU KIEP International Conference on Economic Integration and Structural Changes in East Asia held at Yokohama National University. The authors appreciate comments provided by Paul De Grauwe and .