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Journal of Economic Integration 2021 March;36(1) :72-102.
DOI: https://doi.org/10.11130/jei.2021.36.1.72
Exchange Rate Regimes in the ASEAN: Would a Currency Union Outperform the Independent Managed Floating Regimes?

Ibrahima Sangaré 

Central Bank of Luxembourg, Luxembourg
Corresponding Author: Ibrahima Sangaré ,Email: ibrahima.sangare@bcl.lu
Copyright ©2021 Journal of Economic Integration
ABSTRACT
This paper compares the macroeconomic and welfare performances of the currency union against those from the independent managed floating regime using a two open-country DSGE model with the foreign currency denomination of private debt. The model is calibrated on the average data from the five founding members of the ASEAN and the performance of regimes is assessed under the effects of supply and demand shocks. We find that the macroeconomic and welfare performances of the ASEAN economies under the independent managed floating regimes are comparable to those under a currency union. This is explained by the stability of the intra-regional nominal exchange rates arising from the similarity of policy rules under the independent managed floating regimes. Our findings suggest that the choice of exchange rate targeting regimes with coordinated policies for the ASEAN countries would be an effective way to move towards a currency union.

JEL Classification
E52: Monetary Policy
F33: International Monetary Arrangements and Institutions
F34: International Lending and Debt Problems
F41: Open Economy Macroeconomics
Keywords: ASEAN | monetary union | DSGE model | intra-regional exchange rate stability
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