International Transmission of US Monetary Policy Shocks to Asia

Renato Reside

No 200406, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: This study estimates the individual responses of major Asian economies to an expansionary US monetary policy shock. The main result is that a US expansion leads to a real appreciation for several small, open Asian economies, with a negative impact on trade balances, eventually leading to a decline in GDP. The observed pattern of responses, where the trade balance plays a central role, is consistent with the Mundell-Fleming model. There is no evidence to support the existence of an interest rate channel in Asia, a central feature of new microfounded open economy macroeconomic models. A US expansion lowers real interest rates in the region, but Asian GDP, consumption and investment also generally fall.

Pages: 39 pages
Date: 2004-06
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Published as UPSE Discussion Paper No. 2004-06, June 2004

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Persistent link: https://EconPapers.repec.org/RePEc:phs:dpaper:200406

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