The Synchronization of ASEAN +3 Business Cycles: Prerequisites for Common Currency Union

Abstract

This study aims to analyze the relationship between the business cycles of the ASEAN +3 countries. In addition, the effects of the spillover value on the coincident indicators are determined. This study employs secondary data and uses multivariate time series of five ASEAN countries, namely, Indonesia, Malaysia, Singapore, Thailand, and the Philippines. The proxy was the real gross domestic product (GDP) collected annually from the CEIC, the IMF, and the World Bank for the period from 1964 to 2016. The data was plotted against two time periods, 1964–1998 as the pre-crisis period, and 1999–2016 as the post-crisis period. The index data was changed to the base year 2010. The data was subsequently separated from the trends and the cyclic components. The cyclic components were obtained by using Hondrick-Prescott filter, and them were further analyzed. The analytical method used was Contemporaneous and Cross-Correlation tools. The results showed that, before and after the crisis, the value of the business cycle correlation between ASEAN +3 countries was stronger and moved together at the same level of lag value. The implication of this research was an initial finding of the ASEAN +3 countries’ prerequisites for the formation of a common currency.