Synchronization of business cycles and economic policy linkages in ASEAN

We investigate business cycle synchronization and economic policy linkage in the Association of Southeast Asian Nations (ASEAN). Two important findings are addressed. First, we measure static and dynamic correlations in both macroeconomic variables and policy variables. The vector autoregression and the dynamic conditional correlation model are applied to capture the dynamics of the co-movement pattern in particular. The empirical results show evidence of synchronization in key macroeconomic variables such as gross domestic product, inflation, export, and exchange rates within ASEAN. However, supporting evidence of economic policy linkages are found in only a few cases. Second, the panel regressions show that trade integration is the main factor in the synchronization of the business cycles within ASEAN. Moreover, monetary policy linkage contributes to this co-movement pattern. Financial integration is an important factor only in the correlation between ASEAN and the United States, while the role of fiscal policy linkage is not significant in every case.