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External Shocks, Transmission Mechanisms and Deflation in Asia

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  • Hans Genberg

    (Hong Kong Monetary Authority, Hong Kong Institute for Monetary Research, Graduate Institute of International Studies Geneva, Switzerland)

Abstract

This paper examines the inflation experience of seven small economies in East Asia: Hong Kong, Malaysia, Korea, Philippines, Singapore, Taiwan, and Thailand. It documents common elements in the inflation processes across countries that are not only due to the reaction of the countries to the crisis in 1997-98. Using a particular recursive form of a vector autoregression model the paper finds empirical support for the view that developments in the world economy, as measured by inflation, growth, and interest rate developments in the United States, have very strong influences on each of the countries. The importance of the United States is explained by the historical tendency of the countries in the region to limit fluctuations of their exchange rates vis-¨¤-vis the dollar. Observed differences in the degree of dependence on the US can indeed be ascribed to differences in exchange rate/monetary policy responses to external shocks. The empirical results also show that Mainland China has been a less important source of external shocks than is commonly thought.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 062005.

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Length: 37 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:hkm:wpaper:062005

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References

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  1. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
  2. Hans Genberg, 2003. "Foreign versus domestic factors as sources of macroeconomic fluctuations in Hong Kong," IHEID Working Papers 05-2003, Economics Section, The Graduate Institute of International Studies.
  3. Hans Genberg & Laurent L. Pauwels, 2004. "Wage-Price Dynamics and Deflation in Hong Kong," IHEID Working Papers 06-2004, Economics Section, The Graduate Institute of International Studies.
  4. Alan Ahearne & Joseph Gagnon & Jane Haltmaier & Steve Kamin ... [et al.]., 2002. "Preventing deflation: lessons from Japan's experience in the 1990s," International Finance Discussion Papers 729, Board of Governors of the Federal Reserve System (U.S.).
  5. Alexander W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
  6. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation," IMF Occasional Papers 221, International Monetary Fund.
  7. Philip Schellekens, 2003. "Deflation in Hong Kong SAR," IMF Working Papers 03/77, International Monetary Fund.
  8. Gerlach-Kristen, Petra, 2006. "Internal and external shocks in Hong Kong: Empirical evidence and policy options," Economic Modelling, Elsevier, vol. 23(1), pages 56-75, January.
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Cited by:
  1. George von Furstenberg, 2007. "Assessing the Competitiveness of International Financial Services in Particular Locations: A Survey of Methods and Perspectives," Caepr Working Papers 2007-024, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Petra Gerlach-Kristen & Stefan Gerlach, 2006. "Monetary policy regimes and macroeconomic outcomes: Hong Kong and Singapore," BIS Working Papers 204, Bank for International Settlements.
  3. Funke, Michael & Paetz, Michael & Pytlarczyk, Ernest, 2011. "Stock market wealth effects in an estimated DSGE model for Hong Kong," Economic Modelling, Elsevier, vol. 28(1-2), pages 316-334, January.
  4. George M. von Furstenberg, 2007. "Aspects, Models and Measures for Assessing the Competitiveness of International Financial Services in a Particular Location," Working Papers 182007, Hong Kong Institute for Monetary Research.

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