The Nature of Aggregate Demand and Supply Shocks in ASEAN Countries

Omar Bashar ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper revisits the issue of identification of macroeconomic shocks in ASEAN countries using an alternative identification scheme where the aggregate demand and supply shocks are allowed to be correlated. Applying the technique of Cover et al (2006) within a bivariate Structural VAR model, this paper showed that aggregate demand and supply shocks are interrelated (positively) in ASEAN countries. Unlike previous studies, it is found that changes in the output level are mainly driven by aggregate demand shocks, whereas supply shocks are playing the dominant role in affecting inflation in ASEAN countries. The correlations of the shocks across the countries are found to be quite small, suggesting that ASEAN is still not ready to form a common currency union like Europe.

Keywords: ASEAN; Aggregate Demand and Supply; Structural VAR; Blanchard-Quah Decomposition (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2009-12-22
New Economics Papers: this item is included in nep-mac
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