IMPLEMENTATION OF OPTIMUM CURRENCY AREA CRITERIA AND ITS VOLATILITY: CASE STUDY ASEAN-5+3

• Main Authors: Dimas Bagus Wiranata Kusuma, Arief Dwi Putranto
• Format: Article
• Language: Indonesian
• Published: Bank Indonesia 2010-11-01
• Series: Bulletin Ekonomi Moneter dan Perbankan
• Online Access: https://www.bmeb-bi.org/index.php/BEMP/article/view/390

This paper is aiming to elaborate the case of how exchange rate volatility (ERV), which is supposedly considered to form optimum currency area (OCA), can be reduced in order justify the feasibility of the OCA idea within ASEAN5 plus three. Interestingly, the results provide some evidences that the ASEAN5+3 are considered not really ready to form OCA. It corroborates the existing opinion that the different in economic structure and its policies over foreign environment are becoming some barriers and challenging area to synchronize in the following time. The positive impacts AS to ERV which are incurred in ASEAN5+3 economies indicate the existence of inappropriate condition to form OCA since there are no similar shocks across a monetary union’s participating countries. Under such condition, it would foster the costs of forgoing the exchange rate as a shock absorbing mechanism. It deserves to argue that those observed countries still are resisting their existing regime since they are till believing that they begin to establish the system of monetary which are able to absorb any possible shocks in regards of their SIZE. In sum, the ASEAN5+3 countries are considered to fulfilling the requirement to form currency optimum area which are able to main their stable currency. JEL: D81, E52, F15, F36 Key words: Optimum Currency Area, a Single Currency, Exchange Rate Volatility, Stability