Abstract
AbstractThe growing interdependency among East Asian countries means that there is concern not only on the way their macroeconomic variables are linked across borders, but also on the way shocks are transmitted as a consequence. This paper investigates the effect of macroeconomic linkages on international shock transmissions in selected East Asian countries. Global Vector Autoregressive model (GVAR) is used on the quarterly data of real output, inflation, equity prices, exchange rates, and short-term interest rate over the period 1979Q2–2013Q1. The result generally shows that the focus countries are more linked to global economy through equity markets, real output, and exchange rates, signifying more tendencies for contagion effects in the same way. On the other hand, result from the dynamic analysis, shows that China contributes highest shock transmission in the real sector, whereas US is the highest in the equity market. For the exchange rate; within-regional shock transmission is found to be highest. T...
Highlights
Over the years, the East Asian countries have engaged in two fundamental policy decisions; the liberalization of macroeconomic variables and the intensification of regional economic ties
The ultimate question is how such linkages would affect the transmission of macroeconomic shocks in the region and by implication, decisions regarding the formation of optimum currency area or monetary unionism
Summary and concluding remarks The growing interdependencies among East Asian countries mean that there is concern on the way their macroeconomic variables are linked across borders, and on the way shocks are transmitted as a consequence
Summary
The East Asian countries have engaged in two fundamental policy decisions; the liberalization of macroeconomic variables and the intensification of regional economic ties. The result of the act is translated into two remarkable economic issues; the increased trade, economic growth, and market linkages (Awokuse, Chopra, & Bessler, 2009) on one hand, and on the other hand, the emergence of 1997/98 financial crisis in the region (Kawai, 2005; Yoshitomi, Shirai, & Asian Development Bank Institute, 2000) Each of these dimensions implies that a vent is created through which cross-country spill-overs can be transmitted. The overall significance is the better understanding on how the increased trade and financial linkages within the ASEAN5+3 affect the transmission of macroeconomic shocks in the region and by implication, decisions regarding the formation of optimum currency area or monetary unionism.
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