IDEAS home Printed from https://ideas.repec.org/a/rfh/jprjor/v8y2022i3p237-264.html
   My bibliography  Save this article

In Search of Common Currency Anchor for ASEAN+3+3 Countries

Author

Listed:
  • Jamshaid ur Rehman

    (Assistant Professor Department of Economics GC University Lahore, Pakistan)

  • Tasneem Zafar

    (Chief Instructor (Economics and Public Finance) Civil Services Academy, Pakistan)

  • Shabbir Ahmad

    (Assistant Professor, Department of Economics, Division of Management & Administrative Science, University of Education, Lahore)

  • Aftab Anwar

    (Assistant Professor, Department of Economics, Division of Management & Administrative Science, University of Education, Lahore)

Abstract

This study examines the monetary credibility of ASEAN+3+3 countries (APSCs) against three potential anchors i.e. China, Japan and USA. The time-varying credibility index is based on Capital Assets Price Model (CAPM) methodology which is estimated with Kalman Filter Algorithm (KFA). In multivariate Markov regime switching (MRS) models, the credibility index is made dependent on macro-fundamentals with asymmetric effects in two regimes. In other multivariate MRS models the time-varying transition probabilities (TVTPs) are influenced by macro-fundamentals and cause switching between the two credibility regimes (high and low). The noteworthy results are found against USA vis-Ã -vis against China and Japan. We conclude that USA could relatively be an ideal choice of anchor for APSCs.

Suggested Citation

  • Jamshaid ur Rehman & Tasneem Zafar & Shabbir Ahmad & Aftab Anwar, 2022. "In Search of Common Currency Anchor for ASEAN+3+3 Countries," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(3), pages 237-264, September.
    • Handle: RePEc:rfh:jprjor:v:8:y:2022:i:3:p:237-264
    as

    Download full text from publisher

    File URL: https://jprpk.com/index.php/jpr/article/view/85/129
    Download Restriction: no
    File URL: https://jprpk.com/index.php/jpr/article/view/85
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dahlquist, Magnus & Gray, Stephen F., 2000. "Regime-switching and interest rates in the European monetary system," Journal of International Economics, Elsevier, vol. 50(2), pages 399-419, April.
    2. Qin, Duo & Tan, Tao, 2009. "How much intraregional exchange rate variability could a currency union remove? The case of ASEAN+3," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1793-1803, October.
    3. Pasadilla, Gloria, 2008. "Financial Services Integration in East Asia: Lessons from the European Union," Discussion Papers DP 2008-31, Philippine Institute for Development Studies.
    4. Lee, Grace H.Y. & Koh, Sharon G.M., 2012. "The prospects of a monetary union in East Asia," Economic Modelling, Elsevier, vol. 29(2), pages 96-102.
    5. Matteo Lanzafame & Reginaldo P. Nogueira Jr, 2011. "Credibility In Emerging Economies: Does Inflation Targeting Matter?," Manchester School, University of Manchester, vol. 79(6), pages 1080-1098, December.
    6. Kawai, Masahiro & Park, Yung Chul & Wyplosz, Charles (ed.), 2015. "Monetary and Financial Cooperation in East Asia: The State of Affairs After the Global and European Crises," OUP Catalogue, Oxford University Press, number 9780198714156, Decembrie.
    7. Park, Yung Chul & Wyplosz, Charles, 2010. "Monetary and Financial Integration in East Asia: The Relevance of European Experience," OUP Catalogue, Oxford University Press, number 9780199587124, Decembrie.
    8. Knot, Klaas & Sturm, Jan-Egbert & de Haan, Jakob, 1998. "The Credibility of the European Exchange Rate Mechanism," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 186-200, April.
    9. Wei Sun & Gerald Simons, 2011. "Monetary Integration in East Asia: Evidence from Real Effective Exchange Rates," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 865-876, November.
    10. Swofford, James L., 2008. "Tests of microeconomic foundations of Asian common currency areas," Journal of Asian Economics, Elsevier, vol. 19(3), pages 254-258, June.
    11. Philip Arestis & Kostas Mouratidis, 2002. "Credibility of EMS Interest Rate Policies: A Markov Regime-Switching Approach," Economics Working Paper Archive wp_361, Levy Economics Institute.
    12. Mariangela Bonasia & Oreste Napolitano, 2007. "Do Fundamentals and Credibility Matter in a Funded Pension System ?A Markov Switching Analysis for Australia and Iceland," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(2), pages 221-248.
    13. Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 105-124, February.
    14. Hal Hill & Jayant Menon, 2014. "Financial safety nets in Asia: genesis, evolution, adequacy and way forward," Chapters, in: Masahiro Kawai & Peter J. Morgan & Pradumna B. Rana (ed.), New Global Economic Architecture, chapter 5, pages 83-111, Edward Elgar Publishing.
    15. Angresano, James, 2004. "European Union integration lessons for ASEAN + 3: the importance of contextual specificity," Journal of Asian Economics, Elsevier, vol. 14(6), pages 909-926, January.
    16. Nicholas Sarantis & Sylviane Piard, 2004. "Credibility, Macroeconomic Fundamentals And Markov Regime Switches In The Ems," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(4), pages 453-476, September.
    17. Tronzano, Marco & Psaradakis, Zacharias & Sola, Martin, 2003. "Target zone credibility and economic fundamentals," Economic Modelling, Elsevier, vol. 20(4), pages 791-807, July.
    18. Peter Tillmann, 2003. "The Regime‐Dependent Determination of Credibility: A New Look at European Interest Rate Differentials," German Economic Review, Verein für Socialpolitik, vol. 4(4), pages 409-431, November.
    19. Lamberte, Mario B., 1991. "Structure and Prospects of the ASEAN Financial and Banking Systems: Perspectives from the Philippines," Working Papers WP 1991-05, Philippine Institute for Development Studies.
    20. Marco Tronzano, 2001. "Macroeconomic Fundamentals and Exchange Rate Credibility. Further Evidence on the Italian Experience from a Regime‐switching Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 442-460, September.
    21. Langhammer, Rolf J., 2007. "The Asian way of regional integration: Are there lessons from Europe?," Kiel Economic Policy Papers 7, Kiel Institute for the World Economy (IfW Kiel).
    22. Gomez-Puig, Marta & Montalvo, JoseG., 1997. "A new indicator to assess the credibility of the EMS," European Economic Review, Elsevier, vol. 41(8), pages 1511-1535, August.
    23. Peter Tillmann, 2003. "The Regime-Dependent Determination of Credibility: A New Look at European Interest Rate Differentials," German Economic Review, Verein für Socialpolitik, vol. 4, pages 409-431, November.
    24. Thiam Hee NG, 2002. "Should The Southeast Asian Countries Form A Currency Union?," The Developing Economies, Institute of Developing Economies, vol. 40(2), pages 113-134, June.
    25. Sato, Kiyotaka & Zhang, Zhaoyong & Allen, David, 2009. "The suitability of a monetary union in East Asia: What does the cointegration approach tell?," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(9), pages 2927-2937.
    26. Mundell, Robert, 2003. "Prospects for an Asian currency area," Journal of Asian Economics, Elsevier, vol. 14(1), pages 1-10, February.
    27. Plummer, Michael G., 2006. "ASEAN-EU economic relationship: Integration and lessons for the ASEAN economic community," Journal of Asian Economics, Elsevier, vol. 17(3), pages 427-447, June.
    28. Richard Pomfret, 2005. "Sequencing Trade and Monetary Integration," Others 0502004, University Library of Munich, Germany.
    29. Mariangela Bonasia & Oreste Napolitano, 2007. "The Role of Credibility and Fundamentals in a Funded Pension System: A Markov Switching Analysis for Australia and Iceland," Discussion Papers of DIW Berlin 756, DIW Berlin, German Institute for Economic Research.
    30. Nasution, Anwar, 2005. "Monetary cooperation in East Asia," Journal of Asian Economics, Elsevier, vol. 16(3), pages 422-442, June.
    31. Shirono, Kazuko, 2008. "Real effects of common currencies in East Asia," Journal of Asian Economics, Elsevier, vol. 19(3), pages 199-212, June.
    32. Lee, Grace H.Y. & Azali, M., 2010. "The endogeneity of the Optimum Currency Area criteria in East Asia," Economic Modelling, Elsevier, vol. 27(1), pages 165-170, January.
    33. Huang, Ying & Guo, Feng, 2006. "Is currency union a feasible option in East Asia?: A multivariate structural VAR approach," Research in International Business and Finance, Elsevier, vol. 20(1), pages 77-94, March.
    34. Bernhardsen, Tom, 2000. "The relationship between interest rate differentials and macroeconomic variables: a panel data study for European countries," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 289-308, April.
    35. Chee-Heong Quah & Patrick Crowley, 2012. "Which country should be the monetary anchor for East Asia: the US, Japan or China?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(1), pages 94-112.
    36. Binner, Jane & Chen, Shu-Heng & Lai, Ke-Hung & Mullineux, Andrew & Swofford, James L., 2011. "Do the ASEAN countries and Taiwan form a common currency area?," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1429-1435.
    37. Salah Nusair, 2012. "Is East Asia an optimum currency area? A test of generalized purchasing power parity in the presence of structural breaks," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(3), pages 399-425.
    38. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Frömmel, 2010. "Volatility Regimes in Central and Eastern European Countries’ Exchange Rates," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(1), pages 2-21, February.
    2. de Truchis, Gilles & Keddad, Benjamin, 2013. "Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 394-412.
    3. Peter Tillmann, 2003. "The Regime‐Dependent Determination of Credibility: A New Look at European Interest Rate Differentials," German Economic Review, Verein für Socialpolitik, vol. 4(4), pages 409-431, November.
    4. Peter Wilson & Keen Meng Choy, 2007. "Prospects for enhanced exchange rate cooperation in East Asia: some preliminary findings from generalized PPP theory," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 981-995.
    5. Peter Wilson & Keen Meng Choy, 2007. "Prospects for enhanced exchange rate cooperation in East Asia: some preliminary findings from generalized PPP theory," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 981-995.
    6. Lanzafame, Matteo & Nogueira, Reginaldo, 2013. "Inflation targeting and interest rates," MPRA Paper 46153, University Library of Munich, Germany.
    7. Shahriar Kabir & Ruhul Salim, 2016. "Can A Common Currency Induce Intra-Regional Trade? The Southeast Asian Perspective," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(3), pages 218-234, November.
    8. Dufrénot, Gilles & Keddad, Benjamin, 2014. "Business cycles synchronization in East Asia: A Markov-switching approach," Economic Modelling, Elsevier, vol. 42(C), pages 186-197.
    9. Jarko Fidrmuc & Iikka Korhonen, 2018. "Meta‐Analysis of Chinese Business Cycle Correlation," Pacific Economic Review, Wiley Blackwell, vol. 23(3), pages 385-410, August.
    10. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    11. Shafighi, Najla & Gharleghi, Behrooz, 2016. "Feasibility of a currency union in East Asia using the five-variable structural vector autoregressive model," Economic Analysis and Policy, Elsevier, vol. 52(C), pages 45-54.
    12. Assenmacher-Wesche, Katrin, 2006. "Estimating Central Banks' preferences from a time-varying empirical reaction function," European Economic Review, Elsevier, vol. 50(8), pages 1951-1974, November.
    13. Peter Tillmann, 2003. "The Regime-Dependent Determination of Credibility: A New Look at European Interest Rate Differentials," German Economic Review, Verein für Socialpolitik, vol. 4, pages 409-431, November.
    14. Rodríguez López, Mª A., 2002. "Crisis de credibilidad de la peseta en las bandas del SME. Una aplicación del Modelo de Markov con saltos de régimen," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 20, pages 599-626, Diciembre.
    15. Mouratidis, Kostas, 2008. "Evaluating currency crises: A Bayesian Markov switching approach," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1688-1711, December.
    16. Andrea Cipollini & Kostas Mouratidis & Nicola Spagnolo, 2008. "Evaluating currency crises: the case of the European monetary system," Empirical Economics, Springer, vol. 35(1), pages 11-27, August.
    17. Stephen McKnight & Marco Robles Sánchez, 2014. "Is a monetary union feasible for Latin America? Evidence from real effective exchange rates and interest rate pass-through levels," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 29(2), pages 225-262.
    18. Jean-Pierre Allegret & Cécile Couharde & Cyriac Guillaumin, 2012. "The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity," International Economics, CEPII research center, issue 132, pages 35-89.
    19. Tze-Haw Chan & Chee-Wooi Hooy & Ahmad Zubaidi Baharumshah, 2012. "A structural VARX modelling of international parities between China and Japan in the liberalization era," Economics Bulletin, AccessEcon, vol. 32(1), pages 730-736.
    20. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rfh:jprjor:v:8:y:2022:i:3:p:237-264. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Muhammad Irfan Chani (email available below). General contact details of provider: https://edirc.repec.org/data/rffhlpk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.