Understanding Business Cycle Synchronization: Is Inflation Targeting Paving the Way to Asian Monetary Union?
This empirical chapter is concerned with the determination of business cycle synchronization. The chapter focuses in particular on the role of monetary regimes. Inflation targeting seems to have a small but positive effect on the synchronization of business cycles; countries that target inflation seem to have cycles that move more closely with foreign cycles. Monetary union also has a positive effect on business cycle synchronization, and in turn is more sustainable with greater synchronization. This suggests that a regime of inflation targeting can be useful in easing the transition towards monetary union, above and beyond any of its intrinsic merits.
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