An Optimum Currency Area in South Asia: Is it Plausible?

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This article is an empirical investigation of the potential feasibility of an optimum currency area (OCA) in South Asia. Under an OCA, member countries share a common currency (like the Euro), and forego autonomy with respect to monetary policy instruments. Countries are good candidates for forming an OCA if there is a long-run relationship in the trend (permanent) component of output. Our results indicate existence of such a long-run relationship in the trend component of gross domestic product (GDP) among the member countries in South Asia. Hence, the South Asia region has the potential to form an OCA.


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Journal of World Trade