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How Many Currencies in SAARC Countries?: A Multivariate Structural VAR Approach
- The Journal of Developing Areas
- Tennessee State University College of Business
- Volume 48, Number 4, Fall 2014
- pp. 265-286
- 10.1353/jda.2014.0062
- Article
- Additional Information
This paper examines whether or not the South Asian Association Regional Cooperation (SAARC), can introduce a single currency across the region. A four-variable structural vector autoregressive (SVAR) model is used to identify the underlying shocks and to examine the correlation in shocks for a specified sample period of 1974–2010. The results show asymmetric correlations among domestic shocks, which do not suggest forming a common currency area across the region. The paper also finds lower factor mobility; lower degree of intra-regional trades, and lack of political cooperation, suggesting the SAARC countries are not yet ready to introduce a common currency.