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Identifying Shocks in Regionally Integrated East Asian Economies with Structural VAR and Block Exogeneity

  • Sato, K.
  • Zhang, Z.
  • McAleer, M.J.

In this paper we use a structural VAR model with block exogeneity to investigate if external shocks originating from the USA played a dominant role in influencing the macroeconomic fluctuations in East Asia during the period 1978-2007. The empirical results show a dynamic effect of external shocks, implying that, even though regional integration appears to be deepening and accelerating, especially after the recent global financial crisis, the influence of US shocks on real output fluctuations in the East Asian region is still very strong. The effects of Chinese shocks show an increasing trend over time, but the impacts are still small and not comparable with those of US shocks. The world oil price shock has become increasingly important in influencing the stability of real output growth in the region. The results from variance decomposition and impulse response analysis confirm the findings. Even though Japanese firms have established production networks in East Asia through trade and investment, and China has also grown rapidly and become a key regional country, the results suggest that US influence in the region is still asymmetric and strong. Therefore, it is difficult to conclude that shocks to the East Asian economies have become more regionally oriented.

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File URL: http://repub.eur.nl/pub/18032/EI2010-09.pdf
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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2010-09.

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Date of creation: 08 Feb 2010
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Handle: RePEc:ems:eureir:18032
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Web page: http://www.eur.nl/ese

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  1. Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000. "On Regional Monetary Arrangements for ASEAN," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 121-148, June.
  2. Mackowiak, Bartosz, 2007. "External shocks, U.S. monetary policy and macroeconomic fluctuations in emerging markets," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2512-2520, November.
  3. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  4. Chow, Hwee Kwan & Kim, Yoonbai, 2003. "A common currency peg in East Asia? Perspectives from Western Europe," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 331-350, September.
  5. Yin-Wong Cheung & Jude Yuen, 2004. "The Suitability of a Greater China Currency Union," CESifo Working Paper Series 1192, CESifo Group Munich.
  6. Zhaoyong Zhang & Kiyotaka Sato & Michael McAleer, 2004. "Is a monetary union feasible for East Asia?," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1031-1043.
  7. Gulasekaran Rajaguru & Tilak Abeysinghe, 2004. "Quarterly real GDP estimates for China and ASEAN4 with a forecast evaluation," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 431-447.
  8. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  9. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  10. Zhaoyong Zhang & Kiyotaka Sato, 2008. "Whither A Currency Union in Greater China?," Open Economies Review, Springer, vol. 19(3), pages 355-370, July.
  11. Zha, Tao, 1999. "Block recursion and structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 90(2), pages 291-316, June.
  12. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
  13. Hans Genberg, 2005. "External shocks, transmission mechanisms and deflation in Asia," BIS Working Papers 187, Bank for International Settlements.
  14. Kiyotaka Sato & Zhaoyong Zhang, 2006. "Real Output Co-movements in East Asia: Any Evidence for a Monetary Union?," The World Economy, Wiley Blackwell, vol. 29(12), pages 1671-1689, December.
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