Equilibrium Exchange Rate And Exchange Rate Misalignment In ASEAN-5

Since Asia financial crisis in 1997, the exchange rate systems of ASEAN 5 have been paid close attention by the international society. As the main stricken countries, the ASEAN 5 countries have started to examine their management systems of exchange rate in the last period. In this paper, through the constitution of BEER model, using cointegration analysis and H-P filter, the author estimates the equilibrium exchange rate of ASEAN 5 which were determined by economic fundamentals and the actual real exchange rates represented in the exchange rate market, and then analyze the background reasons of the misalignment based on econometric models.By comparing the different exchange rate systems and their impacts on the macro economy between Singapore and the other four countries, it is natural to come to the two conclusions as following: on one hand, from the time series, the misalignment of every country is obviously declined compared with the times before the financial crisis; on the other hand, from the individual level, compared with Singapore, Malaysia, Thailand, Philippine and Indonesia have paid enormous expenses on national welfare and resource distribution efficiency for their persistent exchange rate misalignment. So all analysis suggest that building a new exchange rate mechanism which could make the real exchange rate rapidly back to equilibrium exchange rate and strengthen the cooperation and harmony among ASEAN are necessary and imperative for these five countries.The opening section of this paper is to study the basic concept of equilibrium exchange rate determinative theories and their application in empirical practice. Sectionâ…¡describes the constitution of BEERs which adapts to the Asian five countries and the selection of the economic fundamentals. Sectionâ…¢provides the empirical results and analyzes the background reasons for the differences between real exchange rate and equilibrium exchange rate in various stages. Sectionâ…£educes the main point of this paper that the reversion to equilibrium exchange rate is the necessary alternative of ASEAN 5 through the whole description of the misalignment in ASEAN 5 and their factual effects. Sectionâ…¤sums up the misalignment process of exchange rate from 1991-2004 in Asian countries and their reforming direction and cooperative trends.