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Impacts Of External Shocks On Asian Economies: Panel Vector Autoregressive Regression With Latent Dynamic Components Approach

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  • DOO YONG YANG

    (College of International Studies, Kyung Hee University, 1 Seo Heon Dong, Gyeonggi-Do, Yongin-si, 100-6008, Republic of Korea)

Abstract

This paper analyzes the effects of external shocks on emerging Asian economies. Since the Asian crisis of 1997–1998, the impact of external shocks on regional economies has grown important in the Asian business cycles as well as in the decision-making process of macroeconomic policies, as emerging Asian economies have become more integrated with the global economy. This paper designs a state-space representation of the panel vector autoregressive model with latent dynamic components in order to show the impulse response function of three external shocks including real income shock, financial shock, and long-term real interest rate shock. This paper finds the external real gross domestic product shock as a dominant one in emerging Asia. The shock has been persistent and has carried long-term effects on emerging Asia before and after the Asian crisis. Second, the external equity shock has also been an important factor influencing the business cycles in the region after the Asian crisis, while the effect has been insignificant before the Asian crisis. Last, the external monetary shock has presumably mitigated effectively by Asia's macroeconomic policy, but it has forced to give up monetary independency in the region.

Suggested Citation

  • Doo Yong Yang, 2013. "Impacts Of External Shocks On Asian Economies: Panel Vector Autoregressive Regression With Latent Dynamic Components Approach," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(04), pages 1-19.
  • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:04:n:s0217590813500264
    DOI: 10.1142/S0217590813500264
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    References listed on IDEAS

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    1. Alicia García-Herrero & Philip Wooldridge & Doo Yong Yang, 2009. "Why Don't Asians Invest in Asia? The Determinants of Cross-Border Portfolio Holdings," Asian Economic Papers, MIT Press, vol. 8(3), pages 228-246, Fall.
    2. Soyoung Kim & Sunghyun H. Kim & Yunjong Wang, 2004. "Regional Versus Global Risk Sharing in East Asia," Asian Economic Papers, MIT Press, vol. 3(3), pages 182-201.
    3. Jongkyou Jeon & Yonghyup Oh & Doo Yong Yang, 2006. "Financial Market Integration in East Asia: Regional or Global?," Asian Economic Papers, MIT Press, vol. 5(1), pages 73-89, Winter.
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    Cited by:

    1. Baharudin, Azfar Hilmi, 2018. "A Bayesian Vector Autoregressive Analysis of Price and Industrial Shocks on the Malaysian Economy," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(3), pages 191-204.

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    More about this item

    Keywords

    External shocks; panel vector autoregressive model with latent components; F30; C23;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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