Can External Shocks Explain theAsian Side of Global Imbalances? Lessons from a StructuralVARModel with Block Exogeneity

Abstract

AbstractDuring the 2000s, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in theUSAand in Asia. This paper studies the impact of external shocks on EastAsian countries in order to determine if these can account for theAsian side of global imbalances. To this end, we estimate a structural vector autoregression (VAR) model with block exogeneity using Bayesian inference. The three external shocks are an oil shock, aUSmonetary shock and aUSfinancial shock. Our main findings are as follows: (i) external shocks account for the current account surplus inKorea,Malaysia, thePhilippines,Singapore, andThailand and, to a lesser extent, inJapan andIndonesia; (ii) the oil shock and theUSmonetary shock seem to have influenced current account balances through real and monetary channels, and theUSfinancial shock through the financial channel.