Yen Synchronization among ASEAN-5, Korea and Japan: Evidence from The Multivariate GARCH Model

Wong, KKS and Chin, Lee and Azali, M (2015): Yen Synchronization among ASEAN-5, Korea and Japan: Evidence from The Multivariate GARCH Model. Published in: International Journal of Economics and Management , Vol. 9, No. 1 (2015): pp. 115-138.

Abstract

In this study, we aim to investigate whether ASEAN-5 and the Korean currency regimes are ready to use Japanese Yen as an Asian future Exchange Rate Mechanism (AERM) by using Multivariate GARCH models. Overall findings show that Singapore, Thailand, and Korea are the potential countries that ready to adopt Japanese Yen as an AERM. However, Malaysian Ringgit, Indonesian Rupiah and the Philippines Peso are weakly correlated with Japanese Yen. This indicates that the East Asian free trade agreement such as ASEAN-10+3 and EAFTA does not enough to promote these low dynamic correlation countries (Malaysia, Indonesia, and the Philippines). Perhaps, the appropriate way to begin the AERM is to form a group of currency system which highly correlated with Japanese Yen (e.g. Singapore, Thailand, and Korea) whiles others could have a commitment to adopt Japanese Yen as a regional trade-invoicing currency in order to increase the level of Yen synchronization correlation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asian Monetary Union (AMU), Asian Exchange Rate Mechanism (AERM), Japanese Yen, Anchor Currency, BEKK GARCH
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F45 - Macroeconomic Issues of Monetary Unions

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