A Test of Price Convergence in the ASEAN-5 Economies

Wai-Ching Poon, Chin-Hong Puah, Ong Hway-Boon and Muzafar Shah Habibullah

The IUP Journal of Monetary Economics, 2005, vol. III, issue 4, 42 - 55

Abstract: This study provides international evidence on integration and price convergence in five ASEAN economies using Johansen and Juselius (1990) multivariate cointegration tests, followed by Granger causality within the Vector Error-Correction Model (VECM), and variance decomposition analysis. The results suggest that there is a stable long run equilibrium relationship between price levels in the ASEAN countries. The Granger long run causal results suggest that Malaysia and Thailand are affected by inflation in the rest of the ASEAN countries. On the other hand, the short run Granger causal results, except for the Philippines, indicate that inflation in the rest of the ASEAN economies is interrelated. Results from variance decomposition further support this contention. In conclusion, this study on price convergence suggests that there is a tendency for the price levels in ASEAN-5 to move towards convergence in the long run, but at a low speed of adjustment.

Date: 2005
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