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Assessing Monetary Policy Efficiency in the ASEAN-5 Countries

Author

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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.

Suggested Citation

  • Arief Ramayandi, 2009. "Assessing Monetary Policy Efficiency in the ASEAN-5 Countries," Working Papers in Economics and Development Studies (WoPEDS) 200902, Department of Economics, Padjadjaran University, revised Mar 2009.
  • Handle: RePEc:unp:wpaper:200902
    as

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    File URL: http://ceds.feb.unpad.ac.id/wopeds/200902.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. 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) 200801, Department of Economics, Padjadjaran University, revised May 2008.
    2. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316.
    3. Dennis, Richard & Soderstrom, Ulf, 2006. "How Important Is Precommitment for Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 847-872, June.
    4. McCallum, Bennett T., 1998. "Solutions to linear rational expectations models: a compact exposition," Economics Letters, Elsevier, vol. 61(2), pages 143-147, November.
    5. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2059-2094, September.
    6. Eric Parrado, 2004. "Singapore's Unique Monetary Policy; How Does it Work?," IMF Working Papers 04/10, International Monetary Fund.
    7. Rochelle M. Edge, 2003. "A utility-based welfare criterion in a model with endogenous capital accumulation," Finance and Economics Discussion Series 2003-66, Board of Governors of the Federal Reserve System (U.S.).
    8. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, vol. 116(511), pages 408-433, April.
    9. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics 9415, Faculty of Economics, University of Cambridge.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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