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Exchange Rate Pass-Through In Asean: Implications For The Prospects Of Monetary Integration In The Region

  • CARLOS CORTINHAS

    ()

    (Department of Economics, The University of Exeter Business School and The Economic Policies Research Unit (NIPE), Portugal)

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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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 54 (2009)
Issue (Month): 04 ()
Pages: 657-687

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Handle: RePEc:wsi:serxxx:v:54:y:2009:i:04:p:657-687
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