Exchange Rate Fixation between US, China, Japan and Eurozone

Abstract

This article assesses the feasibility of exchange rate fixation among the largest economies today, namely, the US, Japan, China and Germany/Eurozone, by reviewing variables according to the optimum currency areas framework. The hypothesis is that with greater interconnectedness in general through time there should be greater convergence in the monetary integration dimensions. The period examined spans from 1980 to 2012, an over-30-year period, encompassing the recent episode of global contraction. While the findings are mixed, economically they seem to suggest a general trend towards greater compatibility or at least one which is not in serious contradiction to exchange rate fixity, particularly for the US and Eurozone. JEL Classification: E62, F31, F32, F41, F42, O53