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

Carlos Cortinhas

42 citations0/0 files storedThe Singapore Economic Review

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Market Dynamics and Volatility

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.

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References

1998The Endogenity of the Optimum Currency Area Criteria 2002Fear of Floating 1996Goods Prices and Exchange Rates: What Have We Learned?2000Low inflation, pass-through, and the pricing power of firms 2005Exchange Rate Pass-Through into Import Prices 2003Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility 2001Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter?2007Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies

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