The Long-Run Determinants Variables of the Equilibrium Exchange Rates in the ASEAN-5 Economies

Abstract

This paper analyses the long-run determinants variables of the equilibrium real effective exchange rates (REER) for ASEAN-5 currencies: Malaysian Ringgit, Indonesian Rupiah, the Philippines Peso, Thailand Bath, and Singapore Dollar. The real effective exchange rates (REER) of these currencies are measured against the US Dollar based on authoritative quarterly data time series between 1991:Q1 to 2006:Q2. A recently developed Autoregressive Distributed Lag (ARDL) co-integration by Pesaran et. al., (2001) was the fundamental approach employed to analyse the relevant hypotheses of this study. The finding is that the domestic money supply (M1) followed by foreign interest rates (R*) are the significant long-run determinants variables for ASEAN-5 equilibrium REER.