MONETARY POLICY IN FIVE ASEAN COUNTRIES

Abstract

The objective of monetary policy is to achieve medium-term goals of price stability and output growth while at the same time achieve short-term stabilization in response to economic disturbances. However, especially in recent years, with greater widespread occurrence of financial liberalization, this has led to changes in the structure of financial markets in the five Asean countries under review - Indonesia, Malaysia, Philippines, Singapore and Thailand. Very often, countries are faced with the dilemma between the desire to attract foreign capital and the concern over the potentially destabilizing effects of large short term capital inflows. As a result, this has greatly affected the conduct and effectiveness of monetary policy in the Asean countries. In addition, the task to choose the most appropriate variable to act as the intermediate target has been even more difficult. This honours thesis aims to provide a greater understanding of and to capture the essence of monetary policy as implemented in the five Asean countries. To do so, it is important to have a broad overview of the recent macroeconomic history as well as the past practices of the central banks of each country when conducting monetary policy. The objective is to identify the possible intermediate targets of the monetary policy and to examine the responsiveness of these targets to two economic indicators -- output and inflation.