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Managing Economic Shocks and Macroeconomic Coordination in an Integrated Region: ASEAN Beyond 2015

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  • Ruperto MAJUCA

    (De La Salle University, Manila)

Abstract

We examine the transmission of economic shocks both from the rest of the world into the ASEAN region, as well as the transmission of such shocks from the rest of the row and ASEAN into a typical AMS. The approach we take is three-pronged. First, we will look into the trade and financial linkages of a "typical" AMS. By "typical", we mean representative AMSs, e.g., Singapore for a developed country, Philippines or Indonesia for ASEAN5 economies and Vietnam for the CLMV (Cambodia, Lao, Myanmar, Vietnam) economies. We look at trade and financial linkages between these typical AMSs, the ASEAN as a whole, and the rest of the world. Second, we employ a specialized type of vector autoregression (VAR) model to decompose the shocks into trade shocks, financial shocks, and commodity price shocks. This we do for the typical AMS in relation to ASEAN and the rest of the world. By decomposing the shocks into their constituent components, we hope to glean important insights on, among others, which component shocks are more important for the typical AMS. Third, we estimate a global projection model in order to analyze how key macroeconomic variables (GDP, inflation, unemployment rate, interest rate, and exchange rate) are interrelated across regions (e.g., U.S., EU, Japan, China) and how these shocks are transmitted across these regions, and from these regions into ASEAN and a typical AMS. This way, we hope to trace how a shock originating from the U.S., for example, will impact EU's, Japan's, China's, and eventually ASEAN's, and a typical AMS's GDP, inflation, unemployment, interest rate, and exchange rates. We then conclude with an analysis of the implications of these on how to manage the economic shocks in an integrated region, as well as the implications for macroeconomic policy coordination in the region

Suggested Citation

  • Ruperto MAJUCA, 2013. "Managing Economic Shocks and Macroeconomic Coordination in an Integrated Region: ASEAN Beyond 2015," Working Papers DP-2013-18, Economic Research Institute for ASEAN and East Asia (ERIA).
  • Handle: RePEc:era:wpaper:dp-2013-18
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    References listed on IDEAS

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    1. Igor Ermolaev & Michel Juillard & Ioan Carabenciov & Charles Freedman & Douglas Laxton & Ondrej Kamenik & Dmitry Korshunov, 2008. "A Small Quarterly Projection Model of the US Economy," IMF Working Papers 08/278, International Monetary Fund.
    2. Escaith, Hubert, 2004. "Regional integration and macroeconomic coordination in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    3. Chi Gong & Soyoung Kim, 2013. "Economic Integration and Business Cycle Synchronization in Asia," Asian Economic Papers, MIT Press, vol. 12(1), pages 76-99, Winter/Sp.
    4. Ioan Carabenciov & Charles Freedman & Roberto Garcia-Saltos & Douglas Laxton & Ondra Kamenik & Petar Manchev, 2013. "GPM6; The Global Projection Model with 6 Regions," IMF Working Papers 13/87, International Monetary Fund.
    5. Michel Juillard & Charles Freedman & Dmitry Korshunov & Douglas Laxton & Ondrej Kamenik & Ioan Carabenciov & Igor Ermolaev & Jared Laxton, 2008. "A Small Quarterly Multi-Country Projection Model with Financial-Real Linkages and Oil Prices," IMF Working Papers 08/280, International Monetary Fund.
    6. Roberto Garcia-Saltos & Douglas Laxton & Michal Andrle & Haris Munandar & Charles Freedman & Danny Hermawan, 2009. "Adding Indonesia to the Global Projection Model," IMF Working Papers 09/253, International Monetary Fund.
    7. International Monetary Fund, 2009. "Adding Latin America to the Global Projection Model," IMF Working Papers 09/85, International Monetary Fund.
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    More about this item

    Keywords

    regional integration; macroeconomic shocks; spillovers; vector autogressions; global projection model; Bayesian estimation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • 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
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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