Exchange Rate Behaviour in ASEAN-5: The Role of Current Account, Inflation, and Political Stability

Abstract

This study analyses the influence of the current account, inflation, and political stability on exchange rate dynamics in ASEAN-5 countries during 2010–2024. A quantitative approach is applied using annual data from the IMF, World Bank, and BIS, estimated through panel data regression with the optimal specification determined by Chow, Hausman, and Lagrange Multiplier tests. The findings show that stronger current account balances foster domestic currency appreciation, while higher inflation contributes to depreciation, consistent with balance of payments and purchasing power parity theories. Political stability exerts a positive effect by improving market confidence and encouraging capital inflows. Policy recommendations highlight the need for coordinated monetary and fiscal policies alongside institutional reforms to strengthen currency resilience. The main limitations relate to the use of annual data and the heterogeneity across countries. The study provides original evidence on the joint role of economic and political fundamentals in sustaining exchange rate stability in emerging economies, underscoring the multidimensional nature of currency dynamics and their broader policy implications. JEL Classification: F3, F30, F31, F32 Keywords: Current Account, Inflation, Political Stability, Exchange Rate

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