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Asymmetry of Shocks and Convergence in Selected Asean Countries: A Dynamic Analysis

This paper aims to investigate whether structural shocks among ASEAN countries are becoming more symmetrical over time, thus indicating whether this region is becoming better prepared to introduce a common monetary policy. For that purpose a dynamic space-state model that complements the conventional Structural VAR models used in the existing literature was estimated by using the Kalman filter so that the evolution of the degree of shock symmetry and, therefore, the evolution in the degree of convergence could be identified over time, distinguishing between a country’s convergence with a regional partner and a more general trend of convergence with the rest of the world. The results showed that in the majority of cases there has been an increase in the degree of convergence of demand shocks in recent years. More importantly, it also showed an increase in divergence in supply shocks for most cases since the beginning of the 90’s even when taking into account the Asian Financial Crisis. This is especially true for the periphery countries suggesting that the Philippines and Thailand are not only not converging but actually diverging from the core group. These results have important implications for the prospects of the creation of a common monetary policy in the region.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 3/2006.

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Date of creation: 2006
Date of revision:
Handle: RePEc:nip:nipewp:3/2006
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  1. Paolo Mauro & Tamim Bayoumi, 1999. "The Suitability of ASEAN for a Regional Currency Arrangement," IMF Working Papers 99/162, International Monetary Fund.
  2. Chow, Hwee Kwan & Kim, Yoonbai, 2003. "A common currency peg in East Asia? Perspectives from Western Europe," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 331-350, September.
  3. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 212-229, June.
  4. Haldane, A G & Hall, S G, 1991. "Sterling's Relationship with the Dollar and the Deutschemark: 1976-89," Economic Journal, Royal Economic Society, vol. 101(406), pages 436-43, May.
  5. Maria Demertzis & Andrew Hallett & Ole Rummel, 2000. "Is the European union a natural currency area, or is it held together by policy makers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(4), pages 657-679, December.
  6. Laurence Boone, 2000. "Comparing Semi-Structural Methods to Estimate Unobserved Variables: The HPMV and Kalman Filters Approaches," OECD Economics Department Working Papers 240, OECD Publishing.
  7. Zhaoyong Zhang & Kiyotaka Sato, 2008. "Whither A Currency Union in Greater China?," Open Economies Review, Springer, vol. 19(3), pages 355-370, July.
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