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Macroeconomic, International Linkage and Effects of External Shocks in Southeast Asian Emerging Economies

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  • Alizadeh Janvisloo , Mohammad Reza

    (Tejarat Bank)

  • Sherafatian-Jahromi , Reza

    (Universiti Putra Malaysia)

Abstract

This study is an attempt to examine the effects of external shocks on macroeconomic variables in selective small open emerging economies in Southeast Asia. A quarterly Global Vector Autoregressive (GVAR) model, including 33 countries, was used throughout 1979–2013. The empirical results showed that the target countries were affected by external shocks, especially the shocks in the U.S, Euro area, China, South Korea, Singapore, and oil price, due to a high dependency on exports and a high degree of globalization in financial markets. The difference in the economic structure of these countries has led to different reactions to shocks. Meanwhile, equity price, exchange rate, and the real output were the most important transmitters of shocks to the interior economy. Furthermore, the shock to the macroeconomic situation in the U.S, the U.K, and South Korea is related to the top ten effective factors on Forecast Error Variance Decomposition (FEVD) of these three variables. Concurrently, the domestic shock in GDP and the exchange rate in each country, except Indonesia, have the highest share in FEVD. According to the results, the effects of the mentioned shocks have to be noticed by macro-prudential analysis studies in the target countries to optimally manage the risks in the various areas of the economy.

Suggested Citation

  • Alizadeh Janvisloo , Mohammad Reza & Sherafatian-Jahromi , Reza, 2019. "Macroeconomic, International Linkage and Effects of External Shocks in Southeast Asian Emerging Economies," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(2), pages 205-230, April.
  • Handle: RePEc:mbr:jmonec:v:14:y:2019:i:2:p:205-230
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    More about this item

    Keywords

    Global VAR; International Linkage; VECM Models; Impulse Response; Error Variance Decomposition; Emerging Economies;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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