Publication: ASEAN Monetary Union: Is ASEAN an Optimum Currency Area?
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Date
2010-06
Authors
Lew, Yuen Sin
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Abstract
Economic arguments in support of monetary union argues that a monetary union is capable of providing stable exchange rate, low interest and inflation rate as well promoting trade within the monetary union zone. If the launch of Euro currency can be
regarded as a success, then it can be used as a model for ASEAN countries to prevent the repeat of the 199711998 financial crisis. The Theory of Optimum Currency Area (OCA) is the main reference point in considering the establishment of a monetary
union. The theory has listed out several important criteria that need to be fulfilled before the establishment of monetary union. This thesis examines the suitability of the OCA theory as a basis for the adoption of monetary union among ASEAN member countries. Based on the OCA theory, the thesis is aimed to analyze a) synchronization of business cycle, b) financial integration, and c) GDP per capita convergence among 10 ASEAN member states. For the first analysis, the approach uses Hodrick-Prescott filter to obtain the business cycle and ARDL method to trace out synchronization.
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ASEAN Monetary Union , Is ASEAN an Optimum Currency Area?