This issue presents research on empirical and institutional aspects of monetary and financial integration in East Asia. In the wake of the East Asian crisis, the perspective of greater cooperation among East Asian countries has attracted a lot of interest. Some timid attempts have been made. However, the success and even the desirability of some of these initiatives assume that the degree of integration and similarity among East Asian economies has reached a high enough level. A number of papers in this issue gather fresh empirical evidence on the extent of international financial integration, growth cycle similarity, and the implications and properties of the yen-dollar market. On the institutional front, the papers contribute to the rich debate in East Asia by: drawing on experiences in other regions or time periods to design effective monetary cooperation; suggesting new ways to ensure financial stability while fostering regional financial integration; and considering some possible centre currency in the monetary integration process. Far from being orthogonal, the empirical and institutional approaches complement each other, which motivates us to make them alternate. Preliminary versions of most of these papers were discussed at two successive conferences held in Hamburg and jointly organized by the Hamburg Institute of International Economics (HWWA) and GREQAM-University of the Mediterranean on 'East Asian Monetary and Financial Cooperation}Concepts, Policy Prospects and the Role of the Yen' in May 2002 and on 'Major Issues in the Dynamics of East Asian Financial Markets' in May 2003.
Regional monetary cooperation in East Asia is lagging behind the degree of real regional economic integration. Still, with a marked acceleration since the East Asian crisis, regional initiatives in this field have started to materialize. Kawai and Takaji offer an assessment of the current state of this process. This assessment is based on lessons they draw from experiences in other regions or time periods: the European Payments Union, the CFA Franc Zone and the Arab Monetary Fund, as well as the better-known European Monetary System. Existing initiatives have been limited to liquidity provision and mechanisms for information sharing, policy dialogue and surveillance. The authors then move to the prescriptive stage and sketch the stages which are required to strengthen East Asian monetary cooperation. They diagnose the need to make surveillance more effective as a prior step to multilateralize and strengthen liquidity support mechanisms, and the desirability to create a common unit of account in order to establish a cooperative framework for exchange rate stability.
While existing empirical tests of the degree of international integration of the Chinese financial system focus exclusively on the stock market, Cheung, Chinn and Fujii examine the interbank-market interest rate after its deregulation in the mid-1990s. Using tests of stationarity and persistence, they examine to what extent uncovered interest parity holds in the short and in the long run vis aΒ΄vis regional and global interest rates, and whether the deviation from it shrank over time. Using panel data techniques, they then study