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A Simulation Study of an ASEAN Monetary Union (Replaces CentER DP 2010-100)

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  • Boldea, O.
  • Engwerda, J.C.
  • Michalak, T.
  • Plasmans, J.E.J.
  • Salmah, S.

    (Tilburg University, Center for Economic Research)

Abstract

This paper analyzes some pros and cons of a monetary union for the ASEAN1 countries, excluding Myanmar. We estimate a stylized open-economy dynamic general equilibrium model for the ASEAN countries. Using the framework of linear quadratic differential games, we contrast the potential gains or losses for these countries due to economic shocks, in case they maintain their status-quo, they coordinate their monetary and/or fiscal policies, or form a monetary union. Assuming for all players open-loop information, we conclude that there are substantial gains from cooperation of monetary authorities. We also find that whether a monetary union improves upon monetary cooperation depends on the type of shocks and the extent of fiscal policy cooperation. Results are based both on a theoretical study of the structure of the estimated model and a simulation study.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-098.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011098

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Web page: http://center.uvt.nl

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Keywords: ASEAN economic integration; monetary union; linear quadratic differential games; open-loop information structure;

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