Some empirical evidences on ASEAN 5 fiscal policy regime and monetary and fiscal policy interactions

• Main Authors: Lew, Yuen Sin, T.L., Ku A.
• Format: Conference or Workshop Item
• Language: English
• Published: 2007
• Subjects: HJ Public Finance
• Online Access: http://repo.uum.edu.my/2422/1/Lew_Yuen_Sin.pdf; http://repo.uum.edu.my/2422/

The interest of common currency among Asian countries have spurred many events happening for the past few years, notably the declaration of Asian Currency Unit in 2006 by Asia Development Bank (ADB). Hence, research papers examining on the integration of monetary policies are abundance. However, paper on examining fiscal policy regime and interaction between monetary and fiscal policy on ASEAN countries, is lacking. The success of monetary union relies on the price stability of member nations. However, joining a monetary union means the lost of monetary policy sovereignty. Therefore, fiscal policy turns to be the next important tool to maintain price stability. This is reflected from the EMU countries after year 1999, where national monetary policies are completely centralized to the European Central Bank (ECB). The European System of Central Banks (ESCB) combines unity of decisions with participation of national central banks in the decision making process and implementation. Nevertheless, national fiscal policies of the member countries are still in the hands of the national governments. This paper intents to examine the type of fiscal policy regime practiced by ASEAN 5 countries. Using macro-economic data for Indonesia, Malaysia, Philippines, Singapore and Thailand, the interrelationship of government surplus/deficits and liabilities is analyzed using Correlation test, Vector Auto-regression (VAR) and Impulse response (IR) function to determine whether a Ricardian or Non-Ricardian fiscal policy has been implemented. Also, comparison of monetary and fiscal policy interactions between some EMU countries and ASEAN 5 are made. The results indicate interactions among inter EMU countries and inter ASEAN countries are generally comparable.