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Policy Coordination in East Asia and across the Pacific *1

March 2005
Koichiro Kamada*2
Izumi Takagawa*3

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  • *1 We would like to thank participants in the Okinawa conference on the Economic Growth in EU and Asia and Comparative Econometric Analysis of Currency and Monetary Policy, especially Hajime Wago (Nagoya University), Satoru Kano (Hitotsubashi University), Kazumi Asako (Hitotsubashi University), and Shinichi Fukuda (University of Tokyo) for their valuable comments. We also thank Dale Henderson (Board of Governors of Federal Reserve System) for constructive discussion and all the participants in the University of Michigan and Hitotsubashi University conference on Macro/Financial Issues and International Economic Relations: Policy Options for Japan and the United States, especially Masahiro Kawai (University of Tokyo), Koichi Hamada (Yale University), Takeo Hoshi (University of California San Diego), and Ronald McKinnon (Stanford University) for their supportive comments. We thank Hiroshi Akama (International Department, Bank of Japan) for reading and correcting one of the appendices. Any remaining errors are the authors' own, as are the opinions expressed, which should not be ascribed to the Bank of Japan, the Monetary Affairs Department, and the Research and Statistics Department.
  • *2 Monetary Affairs Department, E-mail:
  • *3 Research and Statistics Department, E-mail:


This paper constructs an econometric model that describes the relationships in the Asia-Pacific region and gives quantitative insights into the recent policy debates on policy coordination among the East Asian economies. The model includes various monetary and currency policy rules that the actual East Asian economies adopt and creates an environment where one country's policymaking has economic impacts on its neighbors. We apply the model to three current policy issues: (i) the desirability of currency basket pegs in East Asia, (ii) the anticipated effects of China's currency reform, and (iii) the non-negativity constraint on the Japanese nominal interest rates.