Prospects for monetary integration in ASEAN

Abstract

In the past two decades, a new resolve for both increased economic integration and monetary and exchange rate cooperation has started to emerge in ASEAN, most notably since the 1997-1998 Asian financial crisis. This thesis addresses the question of whether there are sufficient economic reasons to justify such a move. The first chapter presents an historical overview of the integration process in ASEAN to date and the main motivations for the study. The following two chapters present a review of the main theory (Chapter II) and empirical works (Chapter III) on optimum currency areas and present the basis for the remainder of the study. The fourth chapter investigates whether structural shocks among ASEAN countries are becoming more symmetrical over time, thus verifying whether this region is becoming better prepared to introduce a common currency. The fifth chapter studies the degree of relative price adjustment in ASEAN by providing a study on the degree of exchange rate pass-through into domestic prices, using the distribution chain of pricing. This study includes, for the first time, all five founding members of ASEAN (ASEAN5) and draws inferences on their suitability for further monetary cooperation. The sixth chapter researches whether the recorded increase in intra-ASEAN trade is moving ASEAN members towards closer economic integration by applying a new panel data methodology. The final chapter presents the main conclusions.