In light of this research gap, the objective of this study is to first examine whether the
central bank’s monetary policy reaction function on short-term interest rates is based on
the inflation gap, output gap or real exchange rate. We then identify which indicator is
more useful in fixing the interest rate. Second, we compare the macroeconomic outcomes
using dynamic panel estimation. Dynamic panel estimation is crucial in examining these
issues since dynamics take into consideration partial adjustments towards the steady state
by entering a lag dependent variable on the right-hand side of the model. We then
distinguish the effect between the IT and non-IT groups. Third, we investigate exchange
rate volatility in ASEAN-10. We then examine whether exchange rate volatility in IT