Yonghyup Oh

Financial Market Integration in East Asia: Regional or Global?

This paper investigates whether financial markets in East Asia are integrated with global markets or with each other.We use two approaches: a volume-based approach and an asset price approach. Our overall results suggest global integration of these markets rather than regional integration and that there is no anchor market in the region that would match the advanced markets such as the United States. Though global integration is not a force that competes with regional integration, there seems to be no strong sign of the creation of an effective financial market mechanism in East Asia.

East Asian Financial and Monetary Cooperation and Its Prospect: Beyond the CMI

This paper examines the ASEAN 3 cooperation of regional financial safety nets, and reviews the regional monetary issues of a single currency and currency competition in East Asia. We point out potential systemic risks in East Asia and the importance of regional surveillance. ASEAN 3 regional surveillance should move forward to the stronger measures of peer review and peer pressure, and make the AMRO a well-resourced professional surveillance secretariat to create capacity to apply independent conditionality. To this effective surveillance mechanism, we propose to establish the Board of Coordination to support the ASEAN 3 ERPD by confirming its decision or remitting the relevant case to the ASEAN 3 ERPD and providing possible legal consultation. The institution building of the CMIM secretariat will accelerate the establishment of a regional monetary institution, e.g. an Asian Monetary Fund. The current crisis provides sufficient incentives for East Asian economies to pursue internationalization of their currencies, and it would open the possibility towards a single currency in East Asia.

International capital market imperfections: evidence from geographical features of international consumption risk sharing

This article attempts to rationalize the validity of gravity variables to explain the degree of international consumption risk sharing. We find that for a panel of 54 countries during 1950–2000, variables such as distance, affluence, a common language and the type of legal system are relevant in explaining not only cross-country consumption and output correlations, but consumption risk sharing. Common law countries share consumption risks more than civil law countries. English speaking countries turn out to share consumption risks more than other language groups, and show significantly higher consumption risk sharing even within the group of common law countries.

Transport Costs, Relative Prices, and International Risk Sharing

This paper studies the role of the transport costs in accounting for the puzzling behaviors of relative prices and risk sharing across countries. We show that introducing the transport costs in an otherwise standard competitive model improves its ability to rationalize the deviations from the law of one price and imperfect international risk sharing. Our analysis suggests that the purchasing power parity puzzle and the consumption correlation puzzle can naturally arise in the presence of real frictions, even under the assumption of complete financial markets.

Monetary Integration With or Without Capital Market Integration

Should East Asia include capital market integration as one of its convergence criteria for monetary integration? Monetary integration in the form of currency baskets or a monetary union would be facilitated if the capital markets were well integrated. East Asian markets are segmented and monetary cooperation in East Asia is not moving forward. This paper shows that even before the launch of the European Monetary Union, European markets were not showing visible progress in capital market integration, and that the degree of integration was below the degree of U.S.Canadian market integration. The results suggest that monetary integration is not necessarily motivated by capital market integration.