This paper explores the nature of regional macroeconomic interdependence in post-crisis
Asia. Macroeconomic interdependence, the degree to which individual economies interact
with each other, is an outcome of underlying economic and financial relationships.
Although economic integration is believed to have strengthened in Asia, its implications
for macroeconomic interdependence are not self-evident. If trade integration has promoted
greater regional specialization, for example, it may well have led to weaker — not
stronger — output synchronization. Interdependence is also influenced by the policy
environment. A price shock is more likely to spread from one economy to another if the
exchange rate is fixed. Likewise, a financial shock in one economy has greater spillover
effects on another if there is greater capital mobility. Any sensible discussion of the benefits
and costs of regional policy cooperation in Asia, therefore, must first establish the nature of
the macroeconomic interdependence that has emerged.
This paper explores the nature of regional macroeconomic interdependence in post-crisisAsia. Macroeconomic interdependence, the degree to which individual economies interactwith each other, is an outcome of underlying economic and financial relationships.Although economic integration is believed to have strengthened in Asia, its implicationsfor macroeconomic interdependence are not self-evident. If trade integration has promotedgreater regional specialization, for example, it may well have led to weaker — notstronger — output synchronization. Interdependence is also influenced by the policyenvironment. A price shock is more likely to spread from one economy to another if theexchange rate is fixed. Likewise, a financial shock in one economy has greater spillovereffects on another if there is greater capital mobility. Any sensible discussion of the benefitsand costs of regional policy cooperation in Asia, therefore, must first establish the nature ofthe macroeconomic interdependence that has emerged.
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