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Regional or global shock? A global VAR analysis of Asian economic and financial integration

Sheue Li Ong and Kiyotaka Sato

The North American Journal of Economics and Finance, 2018, vol. 46, issue C, 232-248

Abstract: This study employs a global vector autoregressive (GVAR) model to empirically investigate the viability of regional monetary arrangements in Asia. In marked contrast to the previous studies, we analyzed whether recent regional economic and financial integration in Asia were driven by global (U.S.) shock or regional (Japanese and Chinese) shock, using the GVAR model that allows global inter-linkages between domestic and foreign variables. By estimating generalized impulse responses of Asian economies’ real outputs and interest rates to global and regional shocks, we found that the Chinese shock exerted more real and financial influences on Asian economies than the U.S. shock. Another regional shock, i.e., the Japanese shock, had a far smaller influence on Asian economies. The relative importance of regional shocks originating from China needs to be considered when establishing regional monetary arrangements in Asia.

Keywords: Global vector autoregressive (GVAR) model; Global shock; Regional shock; Economic and financial integration; Monetary union; Optimum currency area; Asia (search for similar items in EconPapers)
JEL-codes: C32 C53 F15 F33 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecofin:v:46:y:2018:i:c:p:232-248