Exchange Rate Interdependence in ASEAN Markets: A Wavelet Analysis

Abstract

Severe swings among the financial markets’ linkages in the recent past motivate the research to examine the exchange rate co-movements. Therefore, this study examines the interdependence and contagion among the exchange rates of five important Asian emerging markets, namely Indonesia, Malaysia, Philippines, Singapore and Thailand exploring the multifarious nature of interdependence and lead lag association using discrete and continuous wavelet decomposition. The findings show the co-movement among many exchange rate pairs showing a substantial increase during the global financial crisis. There are moderate rises in co-movements, indicating regional market convergence in the long run. Singapore seems to hold driving position and Indonesia falls behind in all exchange rate pairs of the ASEAN-5. The findings provide policy implications for caring the interdependence in foreign exchange markets.

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