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The Impact of Interest Rate Spillover on Output Gap: A Dynamic Spatial Durbin Model

Author

Listed:
  • Josephine Wuri

    (Faculty of Economics, Sanata Dharma University, Yogyakarta 55281, Indonesia)

  • Yuliana Rini Hardanti

    (Faculty of Economics, Sanata Dharma University, Yogyakarta 55281, Indonesia)

  • Laurentius Bambang Harnoto

    (Faculty of Economics, Sanata Dharma University, Yogyakarta 55281, Indonesia)

  • Caecilia Wahyu Estining Rahayu

    (Faculty of Economics, Sanata Dharma University, Yogyakarta 55281, Indonesia)

  • Christina Heti Tri Rahmawati

    (Faculty of Economics, Sanata Dharma University, Yogyakarta 55281, Indonesia)

Abstract

The recent multidimensional crisis has harmed the global economy because countries are currently integrated. In this study, we examine the spillover effect of the United States (US) interest rate on the output gap of ASEAN+3 countries using the dynamic spatial Durbin model from 2010 to 2020. After controlling for various institutional variables, this analysis further examines the effect of the exchange rate and the COVID-19 pandemic on the output gap. This model captures the spatial interactions and short- and long-term effects of interest rate monetary policies. The findings indicate a negative spillover effect of the US central bank interest rate on ASEAN+3 countries’ output gap. The result had significant direct and indirect short-term effects. Additionally, exchange rates negatively affect the output gap. The output gap decreased because of the COVID-19 pandemic. This study is expected to be useful for monetary authorities in developing the best monetary policy for economic recovery.

Suggested Citation

  • Josephine Wuri & Yuliana Rini Hardanti & Laurentius Bambang Harnoto & Caecilia Wahyu Estining Rahayu & Christina Heti Tri Rahmawati, 2024. "The Impact of Interest Rate Spillover on Output Gap: A Dynamic Spatial Durbin Model," Economies, MDPI, vol. 12(1), pages 1-17, January.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:1:p:22-:d:1321129
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