Analysis of shock transmissions to a small open emerging economy using a SVARMA model

Mala Raghavan () and George Athanasopoulos ()

Economic Modelling, 2019, vol. 77, issue C, 187-203

Abstract: Using a parsimonious structural vector autoregressive moving average (SVARMA) model, we analyse the transmission of foreign and domestic shocks to a small open emerging economy under different policy regimes. Narrower confidence bands around the SVARMA responses compared to the SVAR responses, advocate the suitability of this framework for analysing the propagation of economic shocks over time. Malaysia is an interesting small open economy that has experienced an ongoing process of economic transition and development. The Malaysian government imposed exchange rate and capital control measures following the 1997 Asian financial crisis. Historical decomposition and variance decomposition allow contrast of shocks propagating under different policy regimes. Malaysia is highly exposed to foreign shocks, particularly under the managed float exchange rate system. During the pegged exchange rate period, Malaysian monetary policymakers experienced some breathing space to focus on maintaining price and output stability. In the post-pegged period, Malaysia's exposure to foreign shocks increased and in recent times are largely driven by world commodity price and global activity shocks.

Keywords: SVARMA models; Open economy macroeconomics; ASEAN; Shock transmissions (search for similar items in EconPapers)
JEL-codes: C32 E52 F41 F62 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Analysis of shock transmissions to a small open emerging economy using a SVARMA model (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:77:y:2019:i:c:p:187-203

DOI: 10.1016/j.econmod.2018.09.004

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