CO-MOVEMENT 4 PERIOD ASEAN CURRENCY 1997-2005 A THEORY APPLICATION NAMELY OPTIMAL CURRENCY AREA USING VECTOR ERROR CORRECTION MODEL

Starting from the Optimum Currency Area (OCA), this paper utilize the Vector Error Correction Model (VECM) to identify the dynamic short term and the long term co-movement between the ASEAN 4 currencies, including their existing fundamental mechanism. There are at least 3 important findings, (i) the co-movement between the ASEAN 4 currencies is not proved empirically, (ii) the theory of OCA does not robust in explaining the co-movement pattern in ASEAN, and (iii) the existance of OCA is a global phenomena, indicated from the significance of Yen currency on the ASEAN 4. These findings led to a conclusion of this paper that the ongoing economic integration as well as the financial one in ASEAN are not enough to form a unified monetary arrangement nor a common currency in this region. JEL Classification : F02, F36, F33, C32 Keywords : Co-Movement, Optimum Currency Area, Vector Error Correction Model