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

Mala Raghavan () and George Athanasopoulos ()

No 2018-02, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

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 di erent policy regimes. Narrower con dence 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 nancial crisis. Historical and variance decompositions highlight Malaysia's high exposure to foreign shocks. The effects of these shocks change over time under di erent policy regimes. 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)
Pages: 38 pages
Date: 2018
New Economics Papers: this item is included in nep-ets, nep-for, nep-mac, nep-opm and nep-sea
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Published by the University of Tasmania. Discussion paper 2018-02

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Journal Article: Analysis of shock transmissions to a small open emerging economy using a SVARMA model (2019)
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