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

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-à-vis against China and Japan. We conclude that USA could relatively be an ideal choice of anchor for APSCs.