In Search of Common Currency Anchor for ASEAN+3+3 Countries

Jamshaid Rehman, Tasneem Zafar, Shabbir Ahmad and Aftab Anwar
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Tasneem Zafar: Chief Instructor (Economics and Public Finance) Civil Services Academy, Pakistan
Shabbir Ahmad: Assistant Professor, Department of Economics, Division of Management & Administrative Science, University of Education, Lahore
Aftab Anwar: Assistant Professor, Department of Economics, Division of Management & Administrative Science, University of Education, Lahore

Journal of Policy Research (JPR), 2022, vol. 8, issue 3, 237-264

Abstract: This study examines the monetary credibility of ASEAN+3+3 countries (APSCs) against three potential anchors i.e. China, Japan and USA. The time-varying credibility index is based on Capital Assets Price Model (CAPM) methodology which is estimated with Kalman Filter Algorithm (KFA). In multivariate Markov regime switching (MRS) models, the credibility index is made dependent on macro-fundamentals with asymmetric effects in two regimes. In other multivariate MRS models the time-varying transition probabilities (TVTPs) are influenced by macro-fundamentals and cause switching between the two credibility regimes (high and low). The noteworthy results are found against USA vis-Ã -vis against China and Japan. We conclude that USA could relatively be an ideal choice of anchor for APSCs.

Keywords: Credibility; CAPM; Kalman Filter; Markov Regime Switching (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:rfh:jprjor:v:8:y:2022:i:3:p:237-264

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