IDEAS home Printed from
   My bibliography  Save this article

Trade, Trade Finance, and Global Liquidity in Asia; Markov-Switching FAVAR Approach


  • Brooks, Douglas H.

    () (Asian Development Bank)

  • Kurmanalieva, Elvira

    () (Eurasian Development Bank)

  • Yang, Doo Yong

    () (Kyunghee University)


This paper analyzes why the global financial crisis in 2008 severely affected Asia's trade. Asia has been suffering from the falls in export demand from developed countries. However the abrupt trade declines in Asia are not fully explained by reactions to this as in previous experiences. The question is why the financial crisis in 2008 brought about the abrupt and deep collapse in world trade, while other world-wide recessions had more moderate effects on world trade. This paper shows that the dynamic relationship between trade and trade finance is one important factor in explaining this question. This paper also applies the Granger (causality) test to uncover different relationships in the developed and developing economies and show different results for different countries in Asia. We employ a Markov-Switching FAVAR (Factor Augmented VAR) to show that global liquidity shocks are important factors in explaining the huge and abrupt trade drops in Asia.

Suggested Citation

  • Brooks, Douglas H. & Kurmanalieva, Elvira & Yang, Doo Yong, 2016. "Trade, Trade Finance, and Global Liquidity in Asia; Markov-Switching FAVAR Approach," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 20(3), pages 339-363, September.
  • Handle: RePEc:ris:eaerev:0008

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    More about this item


    Trade Finance; Global Liquidity; Markov-Switching Factor Augmented VAR;

    JEL classification:

    • F19 - International Economics - - Trade - - - Other
    • F39 - International Economics - - International Finance - - - Other
    • G01 - Financial Economics - - General - - - Financial Crises


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:eaerev:0008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Juwon Seo). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.