External Shocks, Transmission Mechanisms and Deflation in Asia
AbstractThis 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 InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 062005.
Length: 37 pages
Date of creation: Jun 2005
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Other versions of this item:
- Hans Genberg, 2005. "External shocks, transmission mechanisms and deflation in Asia," BIS Working Papers 187, Bank for International Settlements.
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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