Exchange Rate Behaviour in ASEAN-5: The Role of Current Account, Inflation, and Political Stability
DOI:
https://doi.org/10.21919/remef.v21i2.1319Keywords:
Current Account, Inflation, Political Stability, Exchange RateAbstract
This study aims to examine how the current account, inflation rate, and political stability affect the exchange rates of domestic currencies in the ASEAN-5 countries during the period 2008–2022. A quantitative approach was employed using panel data that combines time series and cross-sectional data. The results show that the current account negatively affects exchange rates, where a surplus leads to domestic currency appreciation in ASEAN-5 countries. Inflation negatively affects exchange rates, supporting purchasing power parity theory and evidence from developing countries. Meanwhile, political stability exerts a positive influence on the exchange rate, highlighting the importance of stable political conditions in fostering market confidence and capital inflows. These findings reinforce the notion that exchange rate dynamics cannot be simplified to purely economic factors, but must be viewed as multidimensional, where non-economic factors such as political stability play a significant role. Accordingly, the implications of this study indicate that exchange rate stability in the ASEAN region is strongly influenced by a combination of external and domestic fundamentals, as well as coordinated monetary and fiscal policies to maintain external balance.References
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