Exchange Rate Regimes in the ASEAN: Would a Currency Union Outperform the Independent Managed Floating Regimes?

Ibrahima Sangaré ()
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Ibrahima Sangaré: Central Bank of Luxembourg, Luxembourg, Postal: Central Bank of Luxembourg, 2 Boulevard Royal, Luxembourg

Journal of Economic Integration, 2021, vol. 36, issue 1, 72-102

Abstract: This paper compares the macroeconomic and welfare performances of the currency union against those from the independent managed floating regime using a two open-country DSGE model with the foreign currency denomination of private debt. The model is calibrated on the average data from the five founding members of the ASEAN and the performance of regimes is assessed under the effects of supply and demand shocks. We find that the macroeconomic and welfare performances of the ASEAN economies under the independent managed floating regimes are comparable to those under a currency union. This is explained by the stability of the intra-regional nominal exchange rates arising from the similarity of policy rules under the independent managed floating regimes. Our findings suggest that the choice of exchange rate targeting regimes with coordinated policies for the ASEAN countries would be an effective way to move towards a currency union.

Keywords: ASEAN; monetary union; DSGE model; intra-regional exchange rate stability (search for similar items in EconPapers)
JEL-codes: E52 F33 F34 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0820

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