Regional Integration, Monetary Cooperation: Evidence from Global VAR Models for the Member States of the Shanghai Cooperation Organization

Abstract

Using quarterly data over the 1996 Q1 to 2015 Q5 period and a global vector regression (GVAR) model, this article empirically investigates the effect of supply, demand, and external shocks on member countries of the Shanghai Cooperation Organization (SCO) in order to examine if these countries have the ground to form a monetary union. The results suggest asymmetric response of central banks in these countries to domestic and external shocks and differentials in the impulse response of the macroeconomic variables to shocks: the response of the central banks of Kyrgyzstan and Russia to domestic shocks and of Belarus, Kyrgyzstan, and Russia to external shocks are short term and severe. Based on our results, forming a monitory union may not be feasible.

The Results of the 20-Year Economic Cooperation of the shanghai Cooperation Organization and its Development Prospects

“…This share jumped from 5% to 15% from 2015 to early 2019. As of 30 June 2019, the RMB share was 13.2% 10 .…”

“…By the end of 2018, China's investment in SCO member countries totaled more than US$ 86.2 billion, covering many fields such as agriculture, manufacturing and infrastructure 6 . The total scale of construction works contracted by 7 shows that the annual stock of Russian investment in SCO member states has remained at an annual average of around US$ 4 billion, and that the main target countries for investment are the Central Asian countries in its traditional sphere of influence, with Kazakhstan in particular accounting for around 70% of total Russian investment in SCO member states [10]. India's direct investment in SCO member states is mainly in Russia, in addition to China.…”