Understanding the distinction between the responses of Newly Industrialized Asian Economies and ASEAN Economies to foreign and domestic output shocks within the New Keynesian framework via a Small Open Economy Vector Error Correction Model (VECM)

• Main Authors: Joaquin, Ana Teresa B., Leachon, Rachel Caroline V., Manansala, Joyce Maxine P., Reyes, Sedfrey C.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Southeast Asia > Economic conditions; Currency question; Business cycles; Vector analysis; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10606
• Institution: De La Salle University

Theoretically acceptable and empirically coherent economic modelling has been a problem in open economy macroeconomics. In an attempt to address this problem, Dungey and Vehbi (2011), grounded by New Keynesian assumptions, developed a Structural Vector Error Correction Model. We apply this theory-consistent SVECM to Newly Industrialized Asian Economies and ASEAN economies to identify foreign and domestic output shocks and determine whether these shocks are permanent or temporary. We also examine the responses of each economy to the relevant shocks identified by the model and assess which foreign-generated shock have the most impact via impulse response analysis and historical decomposition. The dataset is composed of macroeconomic variables of Newly Industrialized Asian Economies, ASEAN economies and their biggest trade partners from 1986Q1-2012Q4. The empirical results we have produced suggest the advancement of deeper economic integration and trade liberalization in East Asia. We observe that NIAEs are better in taking advantage of the full long run impact of foreign output stocks, reflective of their high degree of openness, while US-generated output shocks continue to have the most pronounced effect in Asian economies