EXCHANGE RATE PASS-THROUGH IN ASEAN: IMPLICATIONS FOR THE PROSPECTS OF MONETARY INTEGRATION IN THE REGION

Carlos Cortinhas

The Singapore Economic Review (SER), 2009, vol. 54, issue 04, 657-687

Abstract: This paper investigates, for the first time, the degree of exchange rate pass-through to domestic prices in all five founding members of ASEAN. For this purpose, a three-variable-recursive VAR model was applied that uses the Choleski decomposition method along the distribution chain of pricing, using data for the period 1968 to 2001.The results show that a strong case for entering a currency union can be made for the cases of Singapore, Malaysia and Thailand, as in these countries there appears to be the case of exchange rate disconnect. A case for common currency can also be made for Indonesia but for entirely different reasons. For this country, an independent monetary policy is a clear source of shock to the economy and therefore a currency union would tend to eliminate them. Finally, a weaker case for a common currency can be made for the Philippines as evidence of some exchange rate pass-through to inflation was found but not to import prices.

Keywords: Exchange Rate Pass-through; Monetary Integration; ASEAN; F31; F33; E42 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (8)

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Working Paper: Exchange Rate Pass-Through in ASEAN: Implications for the Prospects of Monetary Integration in the Region (2007)
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DOI: 10.1142/S0217590809003458

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