ASEAN diversity, business cycle synchronization, and monetary coordination: Insights from a VECM model of three ASEAN member states

The optimal amount of monetary and exchange rate coordination among ASEAN member economies (AMS), depends, among others, on whether economic shocks are country-specific or common, as well as on the heterogeneity in monetary and exchange rate regimes, across the ASEAN countries. Are the ASEAN economic shocks country-specific or common? Do AMSs adopt similar approaches to macroeconomic management? A vector error correction model (VECM) was estimated to analyze the diversity and similarities in the time series variables and in policy responses in ASEAN economies. The VECM model was estimated for three representative ASEAN economies, namely Singapore for a developed country, Philippines for ASEAN5, and Vietnam for CLMV economies. Important insights on the idiosyncrasies and the commonalities in the macroeconomic dynamics, policy responses, and long-equilibrium relationships across ASEAN were teased out, and questions on the scope for monetary and exchange rate coordination in ASEAN were answered