Approximating Monetary Policy: Case Study for the ASEAN-5

Empirical studies on the process of monetary policy making in a number of advanced economies have shown that a simple policy reaction function (PRF) performs well in explaining the setting of monetary policy. This paper examines an application of a simple PRF in an attempt to broaden the understanding of monetary policy making processes in five developing ASEAN countries. As found to be the case in the more advanced economies, a simple PRF is also found to perform well in explaining the setting of monetary policy in these countries. Moreover, the findings uncover the main drivers behind the conduct of monetary policy and provide a relatively consistent explanation about the monetary policy episodes in the sample economies.