The Factor Analysis of Exchange Rate Fluctuations in the ASEAN Region

Abstract

In recent years, the possibility of introducing a single currency within the ASEAN region has been considered. This paper examined what factors existed in the exchange fluctuation of ASEAN member countries by using factor analysis. The main conclusions of this study are as follows. First, as a result of a factor analysis using time-series data of all ASEAN member currencies, two factors was extracted. Second, it was suggested that the ASEAN currencies could be classified into three groups depending on how they were affected by these two factors. Finally, as a method of introducing a single currency in the ASEAN region, rather than introducing a single currency as a whole, a single currency will be adopted mainly by groups with similar effects on the home currency by these two factors. It has been shown that the method of expanding the introduction stepwise is preferable.