Measuring the Economic Impact of Monetary Union:
The Case of Okinawa
Working Paper No. 03-W15
Shinji Takagi, Mototsugu Shintani, and Tetsuro Okamoto
ABSTRACT [article]
Data from Okinawa's monetary union with the United States in 1958 and with
Japan in 1972 are used to obtain a quantitative indication of how monetary
union might affect the behavior of nominal and real shocks across two
economies. With monetary union, the variance of the real exchange rate
between two economies declines, and their business cycle linkage becomes
stronger. A VAR analysis of output and price data for Okinawa and Japan
further indicates that the contribution of asymmetric nominal shocks in
business cycles becomes smaller. Monetary union thus seems to facilitate
both nominal and real convergence.
JEL Classification Numbers: E42, F15, F33, F36