A Simulation Study of an ASEAN Monetary Union
CentER Discussion Paper Series No. 2011-098, revision of CentER Discussion Paper Series No. 2010-100
46 Pages Posted: 4 Dec 2010 Last revised: 2 Sep 2011
Date Written: August 23, 2011
Abstract
This paper studies the pros and cons of a monetary union for the ASEAN1 countries, excluding Myanmar. We estimate a stylized open-economy dynamic general equilibrium model for the ASEAN countries. Using the framework of linear quadratic differential games, we contrast the potential gains or losses for these countries due to economic shocks, in case they maintain their status-quo, they coordinate their monetary and/or fiscal policies, or form a monetary union. Assuming for all players open-loop information, we conclude that there are substantial gains from cooperation of monetary authorities. We also find that whether a monetary union improves upon monetary cooperation depends on the type of shocks and the extent of fiscal policy cooperation. Results are based both on a theoretical study of the structure of the estimated model and a simulation study.
Keywords: ASEAN economic integration, monetary union, linear quadratic differential games, open-loop information structure
JEL Classification: C61, C71, C72, C73, E17, E52, E61, F15, F42, F47
Suggested Citation: Suggested Citation
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