Edited by Koichi Hamada, Beate Reszat and Ulrich Volz
Chapter 9: Monetary and Exchange Rate Policy Coordination in ASEAN+1
9. Monetary and exchange rate policy coordination in ASEAN11 William H. Branson and Conor N. Healy INTRODUCTION 9.1 This chapter develops an argument in favor of monetary and exchange rate coordination in East Asia as part of a package of monetary integration that would be aimed at supporting growth and poverty reduction. This could be achieved directly through coordinated exchange rate stabilization and indirectly through the implications coordination would have for reserve pooling and investment in a new Asian Development Fund and through the development of an Asian bond market. By monetary and exchange rate coordination, we are here referring to flexible joint management of exchange rate movements against a common basket, with the aim of maintaining real effective exchange rates (REERs) near their equilibrium values as underlying real economic conditions evolve. The chapter focuses on establishing the conditions for such coordination. In the next section, we examine the policy of monetary coordination within ASEAN. We address the costs incurred when monetary stabilization is not accompanied by the coordination of sustainable underlying policies. We emphasize a distinction between monetary stabilization with and without such policies. The section uses an analytical narrative of the key macro developments in ASEAN since the early 1990s as its vehicle. Macro and exchange-rate policy coordination could have at least cushioned the effects of the 1997–99 crisis and prevented at least partially the growth slowdown that followed. We use this as a starting point for identifying the direct gains from stabilization with sustainable macro policies,...
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