Dynamic Relationships Among Money Supply, Inflation and Exchange Rates in ASEAN: A Panel VAR Approach

Abstract

This paper investigates the dynamic relationships among money supply (M2), inflation, and exchange rates in ASEAN countries using yearly panel data from 2001 to 2022. Authors use Panel Vector Autoregressive (PVAR) Model in order to empirically test the Quantity Theory of Money (QTM) and Purchasing Power Parity (PPP) theories through recent trends in money supply, inflation and exchange rates (US dollar against local currencies) in ASEAN countries. First, authors perform panel unit root test if variables are useable to proceed the proposed model. Second, authors perform panel cointegration test before PVAR modeling. The findings of the results in this study are moderately consistent with theories and some present existing empirical studies related. The limitations and suggestions for future studies are discussed. This paper adds to the existing empirical literature by using microdata of ASEAN region as a focus.