Financial Spillover in Emerging Asia: A Tale of Three Crises

Iwan J. Azis, I. G. Sthitaprajna Virananda and Fauzi I. Estiko
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Iwan J. Azis: Charles H. Dyson School of Applied Economics and Management and Regional Science-CRP Cornell University Ithaca, NY 14853, United States
I. G. Sthitaprajna Virananda: Faculty of Economics and Business University of Indonesia Depok 16424, Indonesia
Fauzi I. Estiko: Faculty of Economics and Business University of Indonesia Depok 16424, Indonesia

Asian Economic Papers, 2021, vol. 20, issue 2, 155-170

Abstract: By measuring time-varying financial spillovers of five asset classes, we analyze the propagation of shocks originating in the United States and Japan into countries of emerging Asia (EA). We compare the scale and nature of spillovers during the 2008–09 global financial crisis (GFC), the 2013 “taper tantrum” (TT), and the ongoing COVID-19 pandemic (C-19). Based on the direct and indirect spillovers, the intensity of the spillover effect was largest during C-19 due to its global and multidimensional nature, and the United States was a net transmitter of spillovers particularly in bonds and equity markets. TT was an important episode for EA as it marked the beginning of the region's financial volatility and increased spillovers especially in bonds market. The impulse responses reveal that most spillovers were transmitted rapidly, in a matter of days. In times of recession whereby financial stability is in danger of being affected by spillovers, a concrete financial cooperation remains absent in EA although formal institutions designed to deal with the contagion have been put in place.

Date: 2021
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