INTERDEPENDENCE AMONG ASEAN 5 IN FOREIGN EXCHANGE MARKET

10.17970/jrem.17.170105.ID ABSTRACT This paper examines the relationship between ASEAN-5 foreign exchange market and US Dollar in last 5 years. The data used is the currency of ASEAN-5 countries that are Indonesia, Malaysia, Vietnam, and Thailand. The data was analyzed using VAR (Vector Auto Regression). Among ASEAN 5, there are interdepence relationship in foreign exchange market. The strongest interdepence relationship are showed between Indonesia, Singapore and Malaysia, while Phillipines and Thailand have less influence toward others. Foreign exchange market among ASEAN 5 shows positive response which has been proven by Granger Causality test.


Introduction Background
ASEAN was formed on August 8, 1967 by Indonsia, Malaysia, the Philippines, Singapore, and Thailand (known as ASEAN-5).These purposes of ASEAN were about cooperation in the economic, social, cultural, technical, educational and other fields, and in the promotion of regional peace and stability through abiding respect for justice and the rule of law and adherence to the principles of the United Nations Charter (asean.org).

The establishment of ASEAN Economic
Community in 2015 has purpose to make economic integration and greater cooperation between ASEAN member and it made up a huge market of US$2.6 trillion and over 622 million people.In 2014, AEC was collectively the third largest economy in Asia and the seventh largest in the world.
Therefore, seeing the cooperation between Indonesia and ASEAN 5 has been working almost 50 years, we would like to examine correlation or interdepence relationship through foreign exchange market.We used foreign exchange toward US Dollar because we need to use the same parameter, and US Dollar is the currency that has been internationally used in ASEAN 5.

Purpose
The purpose of this research is to examine the correlation or interdependence relationship between Indonesia and other ASEAN 5 member through foreign exchange market.

Literature Review
Vector Auto Regression (VAR) first time was used by Christoper Sims (1980) using macroeconomi factor to examine Germany and US market.A VAR is a systems regression model (i.e.there is more than one dependent variable) that can be considered a kind of hybrid between the univariate time series models (Brooks, 2015).One of the biggest difference between VAR and other univariate time series model is VAR treat all variable as endogeneous variable.One of the advantage of using VAR is VAR has feature Granger Causality test which can identify the interdependence relationship.
Stoica et all (2015) found regional interdependence relationship and international interdependence relationship in stock market index in Midle European Union.It proven that the countries which formed association that have close relationship in terms of trading and geographically close has cointegration between stock market index in those countries.
Chen et all (2002) examine the dynamic interdependence of the major stock markets in latin America.Among stock market indexes of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela they found that there is one cointegrating vector.It means that there is dependencies in price.Sheng and Tu (2000), analyzed the relationship before and during monetary crisis in Asia.The research found that there are cointegration relationship in Southeast Asia.This relationship happened during crisis period but didn't happen before crisis period.

Data and Method
This research is using secondary data foreign exchange to US Dolalr for ASEAN 5 countries (Singapore, Malaysia, Indonesia, Thailand, and Indonesia).From the results above, it shows that there's unit root in data level and the data is not stationer.It shows that the data has high probability > α.Therefore, it needs to be stationer then we can use return data for each currency.The result after differencing process can be used in table 2.      From the Granger Causality test above, it can be summarized as follows Table 7.

Summary of Granger Causality
Dependent Variable Therefore it shown that granger causal relationship are happen between Philippines and Indonesia, Thailand and Malaysia, and Philippines and Thailand.

Impulse Response
Impulse response are the test to check whether between one variable to another variable has positive or negative response.If there are shock happen in the future, we need to check the response and how long that shock response toward the related variable will be disappear.

RPHIL
From the figure above, we can see that Indonesia, will have positive response shocks from Singapore and Malaysia then it will decrease to zero in day four or five.While when shock happen in Thailand and Philippine foreign exchange market, Indonesia will react negatively then back to normal position in day three.In addition, Indonesia seems like has the longer response especially if the shock happened in Malaysia's market.Due to the space, response for the other countries are described in appendix.

Variance Decomposition
Variance Decomposition has function to see the movement of one variable that shows by the changing of error variance which influenced by other variable.Therefore, by having variance decomposition can be seen how big the fluctuation one variable can influence other variable.In general, from the table above it can be conclude that 1. Indonesia's currency are affected the most by Singapore's currency, then followed by Malaysia, Phillipines, and then Thailand.2. Malaysia's currency are affected the most by Indonesia, Singapore, thailand, then Phillipines.3. Phillipines's currency are affected the most by Malaysia, Indonesia, Singapore, then Thailand.4. Singapore's currency are affected the most by Malaysia, Indonesia, Phillipines, then Thailand.5. Thailand's currency are affected the most by Malaysia, Indonesia, Singapore, then Phillipines.

Conclusion
According to result and analysis above, it proven that 1.Among ASEAN 5, there are interdepence relationship in foreign exchange market.2. Based on Granger Causality test, the granger causal relationship are happen between Philippines and Indonesia, Thailand and Malaysia, and Philippines and Thailand.3. From impulse response, generally there are positive response between the countries when shock happen.

FPE:
Final prediction errorAIC: Akaike information criterion SC: Schwarz information criterion HQ: Hannan-Quinn information criterion Lag length criteria above is used to test information criteria which shows maximum point.Based on the result, we will choose to use Akaike information criteria in lag 3 because the value is the smallest one among criteria in Schwarz and Hannan-Quinn.

Table 2 . Unit Root test in first Difference
Null Hypothesis: Unit root (individual unit root process) Series: THAI, IDR, MYR, PHIL, SGP Date: 07/17/16 Time: 21:41 Sample: 1/01/2010 12/31/2015 Exogenous variables: Individual effects Automatic selection of maximum lags Automatic selection of lags based on AIC: 0 to 3 Total (balanced) observations: 7825 Cross-sections included: 5 ** Probabilities for Fisher tests are computed using an asymptotic Chi -square distribution.All other tests assume asymptotic normality.After data has been stationer, we run Johansen test