Exchange Rate Regime Performance under External Shocks A Case Study of ASEAN
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Abstract
This paper examined the effectiveness of exchange rate management in ASEAN countries. The sample size consists of 544 average weekly spot rates of ASEAN currencies traded against the US dollar from January 1, 2012 to June 5, 2022. Three quantitative tools were used to analyze the data. Time series modeling were employed to obtain predictive function and assess the stability of exchange rates. Extreme Value Theory (EVT) was used to analyze extreme devaluation of some currencies. Lastly, Weibull distribution was used to reinforce EVT under the rationale that extreme currency devaluation is a failure in monetary policy. Among the 10 ASEAN countries, exchange rates against US dollar for currencies from Laos, Myanmar, Cambodia and Indonesia showed tail index of < 0 indicating significant weakening. Under AR(1) modeling, these four currencies showed high level of fluctuation through AIC information loss indicator, 10.23, 10.74, 8.77, and 13.20 respectively. Among three factors used to evaluate currency value, foreign reserves and current account balance played important role for ASEAN currencies. We also tracked three non-ASEAN currencies (Euro, Chinease Yuan, and Russian Ruble) and found that Euro and Yuan are two most stable currencies that should be used for pegging under manage float exchange rate regime in ASEAN. This stability was confirmed by the AR(1) vector state of -0.0000089 for EUR and 0.0000182 for CNY with significance level of p = 0.0000 in both cases.
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