IDEAS home Printed from
   My bibliography  Save this article

Examining the Threshold Effect of Exchange Rate Changes on Monetary Policy Reaction Function of ASEAN-5: A Panel Threshold Approach


  • Lavaneesvari Manogaran*

    (School of Mathematical Sciences, Universiti Sains Malaysia (Lavaneesvari Manogaran), Malaysia)

  • Siok Kun Sek

    (School of Mathematical Sciences, Universiti Sains Malaysia (Siok Kun Sek), Malaysia)


In small open economies, the connection between exchange rate and monetary policy function is well-recognised either in the form of theoretical concept or empirical literature. Unlike others, this paper revisits the study by utilising the panel threshold approach of Hansen (1999) to investigate how the monetary policy function of ASEAN-5 responding to exchange rate changes in two different policy regimes, pre-crisis (1980Q1-1996Q4) and post-crisis (1999Q1-2015Q4). The results exhibit asymmetric effect of exchange rate changes on monetary policy function in both sub-periods. The double threshold effect in the pre-crisis, showing exchange rate changes influencing the policy function in a limited threshold value. Conversely, in the post-crisis, the single threshold effect illustrating exchange rate changes having stronger effect on the policy function in various magnitudes at all threshold values. Although claiming the execution of flexible exchange rate system aftermath crisis, there exist policymakers’ intervention in stabilising the exchange rate changes with respect to ‘fear of floating’ behaviour in ASEAN-5. Lastly, in each sub-period, the threshold effect of exchange rate changes relative to inflation variation is highly significant while trivial to output gap in triggering the policy function. This witnessing, by and large, the ultimate goal of ASEAN-5 is to achieve price stability.

Suggested Citation

  • Lavaneesvari Manogaran* & Siok Kun Sek, 2018. "Examining the Threshold Effect of Exchange Rate Changes on Monetary Policy Reaction Function of ASEAN-5: A Panel Threshold Approach," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 243-248:2.
  • Handle: RePEc:arp:tjssrr:2018:p:243-248

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Inoue, Takeshi & Hamori, Shigeyuki, 2009. "An Empirical Analysis of the Monetary Policy Reaction Function in India," IDE Discussion Papers 200, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Michael B. Devereux & Philip R. Lane & Juanyi Xu, 2006. "Exchange Rates and Monetary Policy in Emerging Market Economies," Economic Journal, Royal Economic Society, vol. 116(511), pages 478-506, April.
    3. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
    4. Eliza, Nor & M., Azali & Law, Siong-Hook & Lee, Chin, 2008. "Demand For International Reserves in ASEAN-5 Economies," MPRA Paper 11735, University Library of Munich, Germany.
    5. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    6. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    7. Pei-Tha, Gan & Kian-Teng, Kwek, 2010. "The Monetary Policy Reaction Function: Evidence from Asean-3," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 6(1), pages 1-24.
    8. M. S. Mohanty & Marc Klau, 2004. "Monetary policy rules in emerging market economies: issues and evidence," BIS Working Papers 149, Bank for International Settlements.
    9. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    10. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    11. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    12. Ito, Takatoshi, 2010. "Monetary Policy and Financial Stability: Is Inflation Targeting Passe?," ADB Economics Working Paper Series 206, Asian Development Bank.
    Full references (including those not matched with items on IDEAS)


    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:arp:tjssrr:2018:p:243-248. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Managing Editor). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.