The determinants of ASEAN-5 real effective exchange rate vis-a´-vis the UK pound, Dr. Abdalrahman AbuDalu and Prof. Elsadig Ahmed
Dr. Abdalrahman AbuDalu
College of Business
Universiti Utara Malaysia, Kedah
Prof. Elsadig Musa Ahmed
Faculty of Business and Law
Multimedia University, Melaka
Purpose: The purpose of this paper is to present an empirical analysis of long-run and short-run forcing variables of purchasing power parity (PPP) for ASEAN-5 currencies vis-à-vis the UK pound, i.e. their real effective exchange rate (REER).
Design/methodology/approach: This study uses a recently developed autoregressive distributed lag (ARDL) approach to co-integration (Pesaran et al., 2001) over the period 1991:Q1-2006:Q2. Our empirical results suggest that the foreign interest rate (R*) and domestic money supply (M1) are the significant long-run forcing variables of PPP for ASEAN-5 REERs for the three periods.
Findings: In the short-run, the variables have different impacts during the sub-periods and full period for ASEAN-5 countries. The results suggest that the domestic money supply (M1) for Malaysia, domestic interest rate and foreign interest rate (R*) for Indonesia, domestic money supply (M1) and term of trades (TOT) for Philippines, foreign interest rate (R*) for Thailand, and foreign interest rate (R*) and net foreign assets (NFA) for Singapore, respectively, have the highest significant short-run forcing variable of PPP for countries REERs.
Originality/value: In this respect, the outcomes can derive policy implication for the monetary authorities in these ASEAN-5 countries.
Keywords: Economics; Globalization; Finance; ASEAN-5; Purchasing power parity (PPP); Real effective exchange rate.
Citation: AbuDalu, A. and Musa Ahmed, E. (2014), "The determinants of ASEAN-5 real effective exchange rate vis-á-vis the UK pound", World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 10 No. 2, pp. 98-118. https://doi.org/10.1108/WJEMSD-07-2013-0038