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This paper attempts to make a contribution to the recent search for a suitable assessment of the economic feasibility of a higher degree of monetary cooperation in East Asia. By using a structural vector autoregression approach as well as a generalized purchasing power parity approach, we find that a larger group of appropriately selected East Asian economies does satisfy the macroeconomic conditions for forming an Optimum Currency Area (OCA). The East Asian group consists of four ASEAN countries (Indonesia, Malaysia, Singapore, and Thailand) and four Northeast Asian economies (Hong Kong SAR, Japan, Republic of Korea, and Taiwan). This finding presents a striking contrast to the existing research results whose policy recommendation has generally been that countries in East Asia should start with a smaller subgroup currency area. It is time that many East Asian economies as a region made a serious effort to pursue a higher degree of monetary cooperation among themselves for forming an OCA.

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1 under which the United States retains authority and responsibility for security and defense matters in exchange for financial assistance, presently equivalent to 50 percent of GDP. This support includes annual block grants of $60 million for the first five years, $51 million for the next five years, and $40 million for the final five years, as weU as amounts for special projects, all subject to a partial annual inflation adjustment. U.S. federal agencies also provide grants for specified purposes, including health, education, and marine surveillance. IL Output and Prices A. OutputReal GDP grew by a modest 1 percent in 1995, well below the average growth rate recorded during 1991-94, according to tentative estimates prepared by the staff (Table 1). Analysis of output developments is hampered by the absence of official national accounts and aggregate production indicators but partial information points to sluggish activity in fisheries, agriculture, and tourism.Commercial fishing is centered on the export of skipjack and yellow-eye tuna. Substantial investments have been made in fleets, shore facilities, and processing plants in recent years by government-owned enterprises, spearheaded by the National Fisheries Corporation. Purse seiner joint venture operations undertaken with the states of Chuuk, Pohnpei, and Yap and private investors proved unprofitable and both companies were placed under receivership. However, transshipment operations in Chuuk and Yap, which include *The fiscal year starts on October 1.