Impact of Eurozone Financial Shocks on Southeast Asian Economies

Jayant Menon () and Thiam Ng

No 116, Working Papers on Regional Economic Integration from Asian Development Bank

Abstract: Five years after the Global Financial Crisis, the economies of the United States (US) and the eurozone continue to struggle. How will Southeast Asian economies be affected should there be a further deterioration in conditions in the eurozone? In this paper, we present estimates using a Global Vector Autoregression model of the direct impacts in Southeast Asia of a further shock to the eurozone. We find that although the direct impacts are likely to be muted, it could trigger a much larger adjustment should it lead to a reassessment of risks and asset valuations. This is a real possibility given that vulnerability in the region has increased following massive inflows of capital and the build-up of debt related to successive bouts of quantitative easing, initially in the US and now in Japan. In light of a possible reassessment of risks and asset valuations, and with the International Monetary Fund’s resources already stretched, there is a pressing need to improve regional financial safety nets, which are currently unworkable, to deal with the fallout.

Keywords: eurozone crisis; asset bubbles; contagion; regional financial safety nets; Chiang Mai Initiative; ASEAN; ASEAN+3 (search for similar items in EconPapers)
JEL-codes: E37 E58 F32 F34 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-08-01
New Economics Papers: this item is included in nep-mac and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbrei:0116

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