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Assessing Monetary Policy Efficiency in the ASEAN-5 Countries

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  • Arief Ramayandi

    ()
    (Center for Economics and Development Studies Dept. 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.

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File URL: http://lp3e.fe.unpad.ac.id/wopeds/200902.pdf
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Bibliographic Info

Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200902.

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Length: 29 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:unp:wpaper:200902

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Keywords: ASEAN; monetary policy; optimal policy rules; social welfare function;

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References

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  1. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(11), pages 2059-2094.
  2. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(511), pages 408-433, 04.
  3. Arief Ramayandi, 2008. "Simple Model for a Small Open Economy: An Application to the ASEAN-5 Countries," Working Papers in Economics and Development Studies (WoPEDS), Department of Economics, Padjadjaran University 200801, Department of Economics, Padjadjaran University, revised May 2008.
  4. Ulf Soderstrom & Richard Dennis, 2003. "How Important is Precommitment for Monetary Policy?," Computing in Economics and Finance 2003 49, Society for Computational Economics.
  5. Eric Parrado, 2004. "Singapore's Unique Monetary Policy," IMF Working Papers 04/10, International Monetary Fund.
  6. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  7. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9415, Faculty of Economics, University of Cambridge.
  8. Rochelle M. Edge, 2003. "A utility-based welfare criterion in a model with endogenous capital accumulation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-66, Board of Governors of the Federal Reserve System (U.S.).
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