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External Shocks, Transmission Mechanisms and Deflation in Asia

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  • Hans Genberg

    (Hong Kong Monetary Authority, Hong Kong Institute for Monetary Research, Graduate Institute of International Studies Geneva, Switzerland)

Abstract

This paper examines the inflation experience of seven small economies in East Asia: Hong Kong, Malaysia, Korea, Philippines, Singapore, Taiwan, and Thailand. It documents common elements in the inflation processes across countries that are not only due to the reaction of the countries to the crisis in 1997-98. Using a particular recursive form of a vector autoregression model the paper finds empirical support for the view that developments in the world economy, as measured by inflation, growth, and interest rate developments in the United States, have very strong influences on each of the countries. The importance of the United States is explained by the historical tendency of the countries in the region to limit fluctuations of their exchange rates vis-¨¤-vis the dollar. Observed differences in the degree of dependence on the US can indeed be ascribed to differences in exchange rate/monetary policy responses to external shocks. The empirical results also show that Mainland China has been a less important source of external shocks than is commonly thought.

Suggested Citation

  • Hans Genberg, 2005. "External Shocks, Transmission Mechanisms and Deflation in Asia," Working Papers 062005, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:062005
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    References listed on IDEAS

    as
    1. Philip Schellekens, 2003. "Deflation in Hong Kong SAR," IMF Working Papers 03/77, International Monetary Fund.
    2. Hans Genberg & LaurentL. Pauwels, 2005. "Wage-Price Dynamics And Deflation In Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 191-216, June.
    3. Hans Genberg, 2003. "Foreign versus domestic factors as sources of macroeconomic fluctuations in Hong Kong," IHEID Working Papers 05-2003, Economics Section, The Graduate Institute of International Studies.
    4. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation; Determinants, Risks, and Policy Options," IMF Occasional Papers 221, International Monetary Fund.
    5. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    6. Alan G. Ahearne & Joseph E. Gagnon & Jane Haltmaier & Steve Kamin ... [et al.]., 2002. "Preventing deflation: lessons from Japan's experience in the 1990s," International Finance Discussion Papers 729, Board of Governors of the Federal Reserve System (U.S.).
    7. Willy W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
    8. Gerlach-Kristen, Petra, 2006. "Internal and external shocks in Hong Kong: Empirical evidence and policy options," Economic Modelling, Elsevier, vol. 23(1), pages 56-75, January.
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    Cited by:

    1. Dungey, Mardi & Vehbi, Tugrul & Martin, Charlton, 2014. "VAR modelling in the presence of China’s rise : an application to the Taiwanese economy," Working Papers 2014-09, University of Tasmania, Tasmanian School of Business and Economics.
    2. George Furstenberg, 2008. "Assessing the Competitiveness of International Financial Services in Particular Locations: A Survey of Methods and Perspectives," Open Economies Review, Springer, vol. 19(4), pages 539-556, September.
    3. Sato, Kiyotaka & Zhang, Zhaoyong & McAleer, Michael, 2011. "Identifying shocks in regionally integrated East Asian economies with structural VAR and block exogeneity," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(7), pages 1353-1364.
    4. Stefan Gerlach & Petra Gerlach-Kristen, 2006. "Monetary policy regimes and macroeconomic outcomes: Hong Kong and Singapore," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 40-64 Bank for International Settlements.
    5. Tng & Kwek, 2015. "Financial stress, economic activity and monetary policy in the ASEAN-5 economies," Applied Economics, Taylor & Francis Journals, vol. 47(48), pages 5169-5185, October.
    6. Funke, Michael & Paetz, Michael & Pytlarczyk, Ernest, 2011. "Stock market wealth effects in an estimated DSGE model for Hong Kong," Economic Modelling, Elsevier, vol. 28(1-2), pages 316-334, January.
    7. George M. von Furstenberg, 2007. "Aspects, Models and Measures for Assessing the Competitiveness of International Financial Services in a Particular Location," Working Papers 182007, Hong Kong Institute for Monetary Research.

    More about this item

    JEL classification:

    • 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

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