Measuring the Effects of Commodity Price Shocks on Asian Economies

Commodity prices have become volatile over the past two decades, and their recent sharp decline has decreased the consumer price index (CPI) inflation rates for most of the economies. While many Asian economies have benefited from low international oil and food prices, the commodity exporters have suffered. Thus, the negative impact on production through the decline of producer prices has attracted considerable attention. Given this situation, policymakers have become increasingly concerned about measuring the magnitude of oil and food price shock diffusion on a nation's various inflationary indicators. This study investigates this problem by using a global vector autoregressive (GVAR) model. Specifically, we examine the impact of a one-time hike in oil and food prices on the general price levels and production for nine Asian countries and 13 other countries, including the United States and the Eurozone. We also analyze the differences of shock propagations in the pre- and post-GFC periods. Results indicate that the increased integration and dependence on exports intensified the Asian region's vulnerability to external shocks.