Every economy experiences peaks and troughs in its business cycle. It has always been the researchers' interests to identify the underlying causes of shocks. In the business cycle literature, there exists a new strand of methodology that allows the analysis at a disaggregated level using the dynamic factor model. This model allows the decomposition of aggregate shocks into country-specific, regional and world common business cycles for eight East Asian economies of China, Japan, Korea, Indonesia, Malaysia, the Philippines, Singapore and Thailand. It therefore allows the identification of causes for major events experienced by these countries. Empirical evidences show that country factors are the most important causes of major events for all these countries examined here, implying the needs to rely more heavily on its own independent counter-cyclical policies. The region factor is largest for the most developed economies in the region such as Japan, Korean and Singapore, indicating that a regional coordinated policy is more effective for these economies to respond to the disturbances. The world factor explains only 8% of the output variation in East Asia for the median country. In addition, the examination of the contribution of world, region and country-specific factors to the major economic fluctuations of each East Asian country in the past decades shows that the role of world factor is insignificant (with the exception of the first oil shock in 1974). This might explain why the world economy was stabilised through periods of US slowdown by the East Asian economies.
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number
17/09.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Danny Quah & Thomas J. Sargent, 1993.
"A Dynamic Index Model for Large Cross Sections,"
NBER Chapters,
in: Business Cycles, Indicators and Forecasting, pages 285-310
National Bureau of Economic Research, Inc.
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Gregory, Allan W & Head, Allen C & Raynauld, Jacques, 1997.
"Measuring World Business Cycles,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 677-701, August.
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