The optimum currency area is a geographical region that would maximise efficiency which could eventually lead to a common monetary policy for an entire region. This article tries to identify the feasibility of such monetary cooperation by employing the structural vector autoregressive technique. Eurasian countries are examined to see if there is any possibility of monetary coordination, taking Russia as regional economy affecting neighbouring countries.
The results suggest that Eurasian economies, on average, are more affected by global shocks in the medium term than in the short term. The impact of regional shocks remains almost at the same level for both the medium term and the short term. This indicates that external shocks – both global and regional – experienced by Eurasian economies are not temporary. However, the importance of domestic shocks has declined and most domestic shocks are transitory. The fact that the impact of global shocks is so high in these countries demonstrates their lower levels of resilience. For Armenia, Belarus, and Ukraine, this lack of resilience is what makes them vulnerable to global shocks.
DOC Senior Researcher Behrooz Gharleghi’s latest publication is published with the GCRF COMPASS project. Read the full paper here.
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