How ASEAN Nations Responded to The Economic Shocks through Monetary Policy

ASEAN nations have experienced several shocks to their economies. This study aims to investigate how ASEAN nations responded to these economic shocks, especially through their monetary policies. Using data from 6 ASEAN nations in the period 1995 to 2019, we estimated the relationship between implemented monetary policies and economic growth during crisis. Specifically, the Panel Vector Error Correction Model (PVECM) is used to analyze the relationship between the money supply (M1), exchange rate (ER), interest rates (IR), inflation (INF), and GDP per capita. The findings of this study reveal that, in the long term, from 1995 to 2019, most ASEAN nations were able to control economic shocks through money supply expansion (M1), exchange rate (ER), interest rate (IR), and inflation (INF). In the short term, the variables of Money Supply (M1) and Exchange Rate (ER) also have an effect on per capita economic growth. While the variables of Interest Rate (IR), Inflation (INF), and Dummy (DUM) have no effect on per capita economic growth. This implies that economic shocks have a long-term effect on ASEAN nations' GDP per capita but have no short-term effect. This study also shows empirical evidence that the six ASEAN nations' monetary policies will only have a long-term effect on GDP per capita. So, it can be concluded that, the effect caused by the economic shocks which was later mitigated by a variety of monetary policies, has not been able to completely bring changes to the economy of local communities, particularly in the short term.