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A VAR analysis of the effects of monetary policy in East Asia

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  • Ben S.C. Fung

    (Bank of Canada)

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    Abstract

    In this paper, a VAR model is used to study the effects of monetary policy shocks in seven East Asian economies. For each economy, the same identification scheme is imposed and the dynamic responses to a monetary shock are examined in the light of the predictions of monetary theory. The results suggest that the VAR model produces sensible impulse response functions for most of the economies, especially for the sample that ends before the 1997 Asian financial crisis. Given the openness of these economies, the exchange rate plays a significant role in the formulation of monetary policy. In order to capture explicitly the importance of the exchange rate in these economies, plausible weights are also imposed on the exchange rate to identify the model.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 119.

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    Length: 29 pages
    Date of creation: Sep 2002
    Date of revision:
    Handle: RePEc:bis:biswps:119

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    Related research

    Keywords: VAR; monetary policy shocks; East Asia;

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    References

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    1. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    2. Mojon, BenoƮt & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
    3. Giuseppe De Arcangelis & Giorgio Di Giorgio, 1998. "In Search of Monetary Policy Measures: The Case of Italy in the 1990s," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 57(2), pages 213-250, September.
    4. Mark Crosby & Glenn Otto, 2001. "Persistence Of Output Fluctuations Under Alternative Exchange Rate Regimes," Working Papers 072001, Hong Kong Institute for Monetary Research.
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    Cited by:
    1. Eric Parrado, 2004. "Singapore's Unique Monetary Policy: How Does it Work?," IMF Working Papers 04/10, International Monetary Fund.
    2. International Monetary Fund, 2008. "Is Monetary Policy Effective When Credit is Low?," IMF Working Papers 08/288, International Monetary Fund.
    3. Goo, Siwei & Siregar, Reza Y. Siregar, 2009. "Economic Shocks and Exchange Rate as a Shock Absorber in Indonesia and Thailand," MPRA Paper 16875, University Library of Munich, Germany.
    4. Ivan Baboucek & Martin Jancar, 2005. "Effects of Macroeconomic Shocks to the Quality of the Aggregate Loan Portfolio," Working Papers 2005/01, Czech National Bank, Research Department.

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