This study investigate the monetary credibility of ASEAN plus three countries (APTCs) participating in a proposed Asian monetary union, against three potential anchors economies, i.e., China, Japan and USA. The Capital Asset Price Model (CAPM), based on time varying monetary credibility indexes (TVMCIs) is developed and estimated with Kalman Filter Algorithm (KFA) of all APTCs. In the univariate Markov regime switching (MRS) models, a discrete regime shifts were found in the credibility. In multivariate MRS models, the study finds that macro-fundamentals exert asymmetric effects on credibility and time-varying transition probabilities (TVTPs). There is a strong evidence that macro-fundamentals cause when switching in TVMCIs and TVTPs, between the two regimes (high and low) in most APTCs. More significant outcomes are found against USA, vis-a-vis against China and Japan.
Key Words: Credibility, CAPM, Kalman Filter, Markov Regime Switching Model
