Assessing Monetary Policy Efficiency in the ASEAN-5 Countries

Arief Ramayandi

No 200902, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: This paper investigates whether or not monetary policy has been conducted efficiently in five selected ASEAN economies. It derives a utility-consistent social loss function, as a metric for welfare, to assess monetary policy efficiency in a small open economy model. An optimal monetary policy that minimises the social loss function is solved using information on structural parameters estimated for a model that represents each of the selected ASEAN-5 countries. The results are largely consistent with common wisdom in the literature, where policies based on credible commitment give the best welfare outcome. The paper further examines the welfare implications of the currently adopted simple monetary policy feedback rule for each of the sample economies. This exercise points out that there is room for improving the performance of monetary policy in each country, and it should be explored further. It also suggests the possibility that monetary authorities in the sample countries may be optimising over an objective function that di§er from the social welfare function derived in the paper.

Keywords: ASEAN; monetary policy; optimal policy rules; social welfare function (search for similar items in EconPapers)
JEL-codes: C61 E52 E58 F41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-03, Revised 2009-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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