2. Output Linkages in Asia
2.1. Integration and output synchronization
Regional output co-movement has rightly received much attention in the discussion of
Asia’s macroeconomic interdependence and the prospect for regional macroeconomic
policy cooperation. Going back at least to the seminal work of Mundell (1961), economists
have considered positive output co-movement to be a prerequisite for adopting a common
monetary policy for any two economies. If the synchronicity of business cycles strengthens
in a region, the benefits of having stable exchange rates (or even a common currency)
begin to outweigh those of having independent monetary policies to deal with countryspecific,
idiosyncratic macroeconomic shocks.