Creative Destruction of Industries: Yokohama City in the Great Kanto Earthquake, 1923

The purpose of this paper is to explore to what extent spillovers from Asian financial market shocks have risen during the past two decades. In the first part, we examine spillover effects in stock markets. Estimating the GVAR (Global Vector Autoregressive) model, we find that spillover effects from emerging Asia became large in the post GFC (Global Financial Crisis) period. However, we also find that most of the spillover effects were from shocks in manufacturing sector rather than from those in financial sector. This implies that the spillover effects increased in the post GFC period because of increased manufacturing sector's shocks in emerging Asia. In the second part, we examine spillover effects across different foreign exchange rates. As in the stock markets, spillover effects from emerging Asia became large in the foreign exchange markets in the post GFC period. In particular, our high frequency data analysis suggests that an exchange rate policy change by the PBC (the People's Bank of China) had positive spillover effects on the most of the advanced currencies in the post GFC period. The empirical results imply that the impact of Chinese shocks has been rising in the global financial markets.