The imact of exteral shocks i East Asia : lessos from a structural VAR moel with block exogeeit Jea-Pierre Allegret, Cécile Couhare, Criac Guillaumi To cite this versio: Jea-Pierre Allegret, Cécile Couhare, Criac Guillaumi. The imact of exteral shocks i East Asia : lessos from a structural VAR moel with block exogeeit. Documet e travail ; 2012-01 Naterre : EcoomiX, Uiversité e Paris Ouest Naterre La Défese. 2012,.38. <halshs-00697310> HAL I: halshs-00697310 htts://halshs.archives-ouvertes.fr/halshs-00697310 Submitte o 15 Ma 2012 HAL is a multi-isciliar oe access archive for the eosit a issemiatio of scietific research ocumets, whether the are ublishe or ot. The ocumets ma come from teachig a research istitutios i Frace or abroa, or from ublic or rivate research ceters. L archive ouverte luriisciliaire HAL, est estiée au éôt et à la iffusio e ocumets scietifiques e iveau recherche, ubliés ou o, émaat es établissemets eseigemet et e recherche fraçais ou étragers, es laboratoires ublics ou rivés.
EcoomiX htt://ecoomix.fr Documet e Travail Workig Paer 2012-01 The Imact of Exteral Shocks i East Asia: Lessos from a Structural VAR Moel with Block Exogeeit Jea-Pierre Allegret Cécile Couhare Criac Guillaumi Uiversité e Paris Ouest Naterre La Défese (bâtimet G) 200, Aveue e la Réublique 92001 NANTERRE CEDEX UMR 7235 Tél et Fax : 33.(0)1.40.97.59.07 Email : asam.zaroualete@u-aris10.fr
The Imact ofexteral Shocks i East Asia: Lessosfrom a Structural VAR Moel with Block Exogeeit Jea-PierreAllegret * Cécile Couhare Criac Guillaumi Abstract: i this aer, we examie the relative imortace of exteral shocks i omestic fluctuatios of East Asia coutries a check if these shocks lea to asmmetric or smmetric reactios betwee the cosiere ecoomies. To this e, we estimate, over the erio 1990.1-2010.4,a structural VAR moel with block exogeeit (SVARX moel) relig o a comrehesive set of exteral shocks.we firstl ocumet a risigimact of these exteral shocks o omestic variables sice the mi 1990s. Fiall, real oil ricea U.S. GDP shocks have a sigificat imact o omestic activit a lea to more smmetric resoses, comare to U.S. moetar shock a MSCI Iex fiacial shocks. Kewors:exteral shocks, East Asia, SVARX moel. JEL Classificatio: F32, F33, F42. * EcoomiX-CNRS, Uiversit of Paris Ouest Naterre, Frace. E-mail: jallegret@u-aris10.fr. Corresoigauthor: Jea-Pierre Allegret, EcoomiX-CNRS, Uiversit of Paris Ouest Naterre, UFR SEGMI, 200 aveue e la Réublique, 92001 Naterre, Frace. Tel : +33 (0) 1 40 97 40 85. Fax : +33 (0) 1 40 97 71 42. EcoomiX-CNRS, Uiversit of Paris Ouest Naterre, Frace. E-mail: cecile.couhare@u-aris10.fr. CREG, Uiversit of Greoble, Frace.E-mail: criac.guillaumi@umf-greoble.fr. 1
1. Itrouctio The Asia crisis i 1997-98 has highlighte the role of regioal cotagio i fiacial crisis. The vulerabilit of East Asia coutries to these regioalcotagio effectshas bee exlaie b their high oeess egree (Corsetti et al., 1999), as well as b their itereeece (Kamisk et al., 2003). This crisis has romte these coutries to stregthe their moetar cooeratio o the regioal scale i orer to imrove their moetar stabilit. Thus, i the aftermath of this crisis, a first wave of iitiatives to imlemet cooerative evices betwee East Asia coutries occurre. 1 After a iitial belief i the ecoulig mth (Eichegree a Park, 2008) mail exlaie b the ramatic icrease i itra-regioal trae a the leaig role of Chia i the regio, the global imesio of the subrime crisis followig the Lehma Brothers collase has oce agai raise the issue of the vulerabilit of East Asia coutries to exteral fluctuatios. I resose to the global crisis, the authorities have stregthee their fiacial cooeratio b sigig a agreemet officialisig the multilateralisatio ste of the Chiag Mai Iitiative aouce i earl 2009. These agreemets create a $120 billio fu meat to revet a liquiit crisis i oe of the sigig coutries. 2 The emhasis lace o exteral shocks is uerstaable give some structural characteristics of East Asia coutries, articularl their traea fiacial oeess a questios their risig effort i cooriatio a olic harmoizatio o a regioal scale. Therefore recet literature has ut the emhasis o exteral shocks i the regio. Iee ivestigatig the resoses to these shocks ca give a aitioal iicatio, to the uique aalsis of omestic shocks, o the homogeeit egree betwee the area s coutries a o the covergece rocess of their olicies. Several methos have bee use i orer toassess this issue. A first stra of research ecomoses ccles ito secific a commo comoets. Usig a triimesioal VAR betwee 1971Q1 a 1997Q2, Chow a Kim (2003) ietif, i aitio to coutr-secific shocks, global a regioal oes i orer to check to what extet each shock most sigificatl affects outut fluctuatios. 3 Their mai fiig is that a moetar uio woul ot be esirable i the East Asia area because ecoomies are roe to coutr-secific that 1 Mai measures are the followig: the ASEAN Surveillace Process i October 1998; the Ecoomic Review a Polic Dialogue i Ma 2000; the Chiag Mai Iitiative i Ma 2000 which establishe a regioal fiacial arragemet uer the form of bilateral swas. 2 See for istace Aizema a Pasricha (2010), Guillaumi (2009), Lombari (2010) a Oh (2010) for the etails of these agreemets. 3 Global shock is aroximate b the Uite States while Jaa is use as a rox for the regioal shock. 2
is asmmetric shocks. Some aers imlemet amic uobserve factor moels. Results are mixe. Moeta a Rüffer (2009) fi over the erio 1975Q1-2005Q3 that the egree of busiess ccles schroizatio has icrease sice 1990 excet for Chia a Jaa. Oil rices a Jaaese Ye-US Dollar exchage rate are amog the mai rivers of this busiess ccle co-movemet while worl activit a iteratioal fiacig coitios are less imortat. Lee a Azali (2006), over the erio 1960-2000, fi that cout-secific shocks remai the mai river of outut fluctuatios excet for Jaa. A seco stra of research relies o structural vectorautoregressio (VAR) moels to ietif the ature a the imact of exteral shocks o East Asia ecoomies. Huag a Guo (2006) estimate over the erio 1970-2002 a four-imesioal VAR icluig a global exteral shock moelle as a global sul shock. Exteral isturbaces are ot ol sigificat, but the are also ositivel correlate amog East Asia coutries suggestig their smmetric ature. Ng (2002) aalses three shocksi a triimesioal VAR for five Southeast Asia coutries over the erio 1970-1995. The ietifie shocks are the folowig: exteral, omestic (sul-relate) a omestic (ema-relate) shocks. The exteral shock is cosiere as a simultaeous combiatio of sul a ema exteral shocks. His results show a strog correlatioof resoses to these shocks icluig the exteral oesuggestig that these coutries are suitable for a moetar uio. Rüffer et al. (2007) evelo VAR moels with sig restrictios for ie East Asia coutries a Iia over the erio 1979Q1-2003Q4. Their moel aggregates ifferet variables accoutig for moetar, fiacial, commoit rices a real shocks as exteral factors exertig a ifluece o macroecoomic fluctuatios. The fi that busiess ccles are mail rive b exteral factors. I orer to stu the imortace of exteral isturbaces as a source of macroecoomic fluctuatios i emergig markets 4, Maćkowiak (2007) raws u structural VAR moels with block exogeeit. His moels ecomass as exteral shocks the Feeral Fu rates, the worl commoit rices, the U.S. moe stock, the U.S. aggregate outut, a the U.S. aggregate rice level. Over the erio 1986M1-2000M12, Maćkowiak (2007) obtais three mai results. Firstl, exteral isturbaces other tha US moetar olic shock exlai a sigificat share of the variace of omestic variables i emergig coutries. Secol, US moetar olic shock amouts for less tha 10 er cet of macroecoomic fluctuatios i emergig coutries. Fiall, all exteral shocks te to be ersistet as their imacts icrease over loger horizos.more recetl, Gimet (2011) has stuiethe vulerabilit of East Asia 4 His samle iclues eight emergig coutries whose six East Asia ecoomies: Hog Kog, Malasia, the Philiies, Sigaore, South Korea, a Thaila. 3
coutries to iteratioal fiacial crises usig a structural Baesia vector autoregressio. She comares two major crises eisoes: the Asia crisis (1997M1-1999M12) a the subrime crisis (2007M1-2009M12). Her results show that the fiacial vulerabilit of East Asia ecoomies has ecrease but resoses to iteratioal fiacial shocks are asmmetric. Oe imortat shortcomig of these stuies is that o oe so far has egage i a sstematic examiatio of a comrehesive set of istict exteral shocks. East Asia ecoomies are iee like through a umber of chaels; a the extet to which ecoomies reso to exteral shocks ma var eeig o the ature of the foreig shock. To overcome this rawback, we efie, i this aer, several exteral shocks i orer to quatif their resective imact o East Asia coutries. More recisel we aress two mai issues: firstl the extet to which the vularibilit of East Asia coutries ca be attribute to exteral factors, a secol which of these factors leas to asmmetric or smmetric reactios betwee the cosiere ecoomies. The exteral shocks iclue real oil rices shocks, trae shocks, a fiacial exteral shock, a a moetar exteral shock. The effect a relative imortace of exteral shocks are etermie usig a Structural VAR moel with block exogeeit(svarx moel) i which exteral variables are ot affecte b omestic shocks either cotemoraeousl or with lags. Such VAR moels exhibit amic resoses cosistet with a riori theoretical riors like to the oe ecoom framework. I aitio, as stresse b Buckle et al. (2007), the imositio of exogeeit ermits the iclusio of more iteratioal variables i orer to itegrate the iversit of shocks hittig omestic ecoomies, while reucig the umber of aramaters to estimate. As a cosequece, such moel imroves the qualit of estimatios, i articular cocerig moetar olic reactio fuctios (Cushma a Zha, 1997). As the moel assumes that the emergig market is a oe ecoom, it is the ossible to estimate to what extet macroecoomic fluctuatios i the emergig market are cause b exteral shocks. Usig this framework, we ietif the ature a the weight of ifferet exteral shocks affectig a samle of East Asia coutries. Our samle covers the erio from 1990Q1 to 2010Q4. However, i orer to check if the risig liberalisatio of East Asia ecoomies sice the mi 1990 has lea to a growig imortace of these exteral factors a more smmetric resoses, we relicate our estimatios over theeriofrom 1996Q1 to 2010Q4. The results of the aer show a risig imact of exteral shocks o omestic variables sice the mi 1990 s. Moreover, oil rice a traeshocks have a sigificat imact o omestic activit, comare to exteral moetar a fiacial shocks. This fiig suggests that trae 4
chaels are above all sigificat i East Asia ecoomies a that these ecoomies are less exose to exteral fiacial a moetar shocks. Fiall, resoses to exteral real shocks are ositivel correlate, while resoses to exteral moetar a fiacial shocks are less smmetric, revealig a ecoomic itegratio rocess evolvig faster tha the moetar oe i the area. The rest of the article is structure as follows. Sectio 2 exlais the methoological framework a iscusses its mai assumtios. Sectio 3 resets the results of the variace ecomositio for the variables cotaie i the SVARX moel. The amic resoses of omestic variables to the ifferet exteral shocks are aalse i Sectio 4. Sectio 5 iscusses o the ature (smmetric or asmmetric) of resoses to exteral shocks. Sectio 6 coclues. 2. Methoological Framework 2.1. SVAR moel with block exogeeit I orer to allow more accuratel for the effects of exteral shocks o East Asia coutries, we cosier the followig structural VAR moel with block exogeeit(svarx moel): A A 11 ( s) A12( s) ( s) A ( s) ( t s) ( t s) ε1 = ε ( t) ( ) s= 0 21 22 2 2 t where A 12 ( s) = 0 for each s = 0,1,...,. 1( t s) is a vector of exteral variables a 2 ( t s) is a vector of omestic variables. ε ( t) is a vector of structural shocks of exteral origi a ε ( t) 1 is a vector of structural shocks of omestic origi. ( t) ε ( t) ε ( ) [ ] 0 1 ε = [ ]' is a Gaussia raom 1, 2 t [, s > 0] I vector satisfaig E ε ( t) ( t s), s > 0 = a ( t) ε ( t) ' ( t s) E ε = with I the ietit matrix. We cosier four exteral shocks i orer to better cature the exteral vulerabilities of East Asia coutries over the stuie erio. The vector of exteral variables, ( t s) 1, iclues the real oil rice 5 (rbret), the real U.S.GDP (U.S. g), the Fe Fus iterest rate (Fe Fus) a the MSCI iex 6 (MSCI). 2 5 The real oil rice is calculate as the Bret oil rice ivie b the worl GDP eflator. We also have use the U.S. GDP eflator a the U.S. cosumer rice iex. Results, available from the authors, are similar. 6 Stock iex calculate b Morga Stale Caital Iteratioal (htt://www.msci.com/) mae u of 1500 stocks i the eveloe coutries. We use this worl iex but excluig the Jaaese Kokusai Iex. 5
The first exteral shock focuses o sul shocks roxie b the real oil rice. Iee, most of these ecoomies imort raw materials for their iustries (Cushma a Zha, 1997). Astheir growth heavil still ees o exorts to iustrialise coutries, eseciall with the Uite States, trae shock is aroxime b U.S. GDP shock.the thirexteral shock takes ito accout the trasmissio of foreig moetar olic which ees o the oeess of the caital accout a the exchage rate regime. As East Asia ecoomies have aote a exchage rate egge to the U.S. ollar or to a currec basket i which the weight of the ollar reresets betwee 80 a 95% (Reihart a Rogoff, 2004; Ilzetzki et al., 2009), we ma exect that omestic variables shoul be sesitive to chages i U.S. iterest rates. Fiall, i these ecoomies, there has bee a tre towars oe caital accouts. I articular, these ecoomies beefite a kee beefitig from caital iflows which ture out to be highl volatile as eviece b the Asia crisis a more recetl b the global crisis. This is wh we also retai a exteral fiacial shock able to cature stress o fiacial markets a roxie bthe MSCI iex. The vector of omestic variables, ( t s) 2, iclues three variables, i.e. the real outut ( ),the omestic roucer rice iex 7 ( )a the omial exchage rate agaist the U.S. ollar ( ). Itroucig the exchage rate is justifie b the ature of this variable, which costitutes a imortat trasmissio mechaism for a shock, as showe b Cushma a Zha (1997). The moel is formulate searatel for each coutr a assumes that East Asia coutries are eough small that the o ot alter worl variables. 8 This assumtio imlies the block 12 ( s) = 0 ε ( t), o ot affect the exteral variables i the vector ( t s) exogeeit restrictio A for each s = 0,1,..., which iicates that omestic shocks, 2 with lags. 1 either cotemoraeousl or 2.2. Ietificatio scheme The ietificatio of the structural form requires imosig ( 1) / 2 restrictios, i.e. twetoe here as we cosierseve variables.the moel imlies restrictios of short a log rus 7 We chose roucer rices istea of cosumtio rices i orer to avoi the ifficulties like to the resece of rices cotrols i ma stuie coutries. Iee, excet Jaa a Hog Kog, ma coutries i the regio subsiize irectl or iirectl oil rices (the Philiies, Sigaore, South Korea, a Thaila), use rices regulatio (Chia) or the two istrumets (Ioesia a Malasia). As a result, it is ifficult to iterret cosumtio rices resoses to oil rices shocks. 8 We have ru Grager o-causalit tests i orer to check this hothesis. Results are availableuorequestfrom the authors. 6
restrictios a exogeeit assumtios. Followig Maćkowiak (2007) a Sato et al. (2009), we imose the followig costraits. The block exogeeit restrictio imlies that omestic structural shocks, ε ( t), o ot affect the vector of exteral variables, ( t s) 2 1, at time t or t s. We thus obtai twelve costraits. Regarig the exteral block, we assume that real oil rices are ot cotemoraeousl affecte b the three others exteral shocks. We obtai three aitioal costraits. Ietificatio of the U.S. moetar olic follows the work of Leeer at al. (1996) i which the Fe Fus rate ca reso cotemoraeousl to chages i the real oil rice. Furthermore, the Fe Fus rate ca also reso to chages i the real U.S. GDP (Christiao et al., 1999). The lik betwee real a fiacial sectors is comlex as stressei Berake (1995), Berake et al. (1997) or Boivi (2002). These authors emostrate that a shock o the real GDP affects cotemoraeousl the stock market iex but ot vice-versa. This lik is also assume for emergig markets i Sato et al. (2009). 9 Followig this literature, we assume that (i)the real U.S.GDP is ot affecte b the U.S. iterest rate a the stock market volatilit a (ii) the U.S. iterest rate is ot affecte b short term stock market volatilit. Thus, we get three aitioal costraits.regarig the omestic block, we imose three log-ru zero restrictios, as i Blachar a Quah (1989), Claria a Gali (1994) a Sims a Zha (1999), where: (i) a omestic ema shock has o imact o the omestic rouct a (ii) a moetar omestic shock has o imact o the omestic rouct a o the omial exchage rate.we use SURE (Seemigl Urelate Regressio Equatios) estimatio with the above block exogeeit assumtio to ietif structural shocks b imosig both cotemoraeous a log-ru restrictios.i orer to take ito accout fiacial crises that have hit East Asia ecoomies (Asia crisis, recet worl crisis), we itrouce two umm variables: the firstoe equals to 1 from 1997Q2 to 1998Q3 a 0 otherwise; the seco oe equals to 1 from 2008Q3 to 2009Q2 a 0 otherwise. 2.3. Data We use quarterl ata over the erio 1990Q1-2010Q4 10 i orer to iclue the mai ecoomic eisoes which have characterize the itegratio rocess of East Asia coutries (1997-1998 crisis, 2007-2008 crisis, settig u of fiacial a moetar regioal 9 See, for a literature review, BIS (2011). 10 Source material is escribe i Aeix A. 7
agreemets). The samle iclues Chia, South Korea, Hog Kog SAR, Ioesia, Jaa, Malasia, the Philiies, Sigaore a Thaila. 11 Ever variable excet U.S.iterest rate (Fe Fus) have bee ture ito logarithms. GDP ata (or, if uavailable, iustrial rouctio ata) a roucer rice iex have bee eseasoalize. 12 We first test the orer of itegratio for each variable before ruig coitegratio tests. 13 Fiall, ue to the shortess of the ata set i sub-erios, we set the lag legth of the SVARX to oe, as i Caova (2005), istea of aligthe usual Akaike s, Schwartz a Haa-Qui s iformatio criteria. 3. The imortace of exteral shocks i the variace of omestic variables I orer to etermie the abilit of exteral shocks to exlai omestic variables fluctuatios atifferet horizos, a the relative imortace of each shock,we erform a staar variace ecomositio exercise for the variables cotaie i the SVARX moel. The results of thisecomositio are reorte i tables B1 to B.3 a B.4 to B.6 for the all-erio samle (1990Q1-2010Q4) a the sub-erio samle (1996Q1-2010Q4) resectivel. Table B.1 resets the variace ecomositio of the forecast error of (log) real GDP.The first four blocks of rows shows the fractio of the total variace of real GDP that ca be accoute b each te of exteral shock, while the last blockof the table islas the fractio that ca be exlaie b all exteral shocks. For all stuie coutries, excet Ioesia, over a short-ru horizo (1-4 erios), the all erio samle shows that exteral shocks exlai at least 11 ercet of the real GDP variaces. Jaa a Hog Kog are eseciall sesitive to these shocks isofar as the latter exlai resectivel 58.8 a 36.8 of their real GDP variace. Exteral shocks te to be ersistet as their weight i the real GDP variaces icreases with time horizo. The subsamle erio from 1996Q1 to 2010Q4 exhibits a clear icrease i the ifluece of exteral shocks. More recisel, at the short-ru horizo, these shocks exlai more tha 15 11 Bruei, Camboia, Mamar, a Vietam were remove from the samle because of the lack of ata availabilit. 12 Cesus X-12 metho. 13 I this resect, we have ru usual ADF a Phillis-Perro (PP) tests. We also have teste for structural breaks b usig firstl Perro (1989) test with exogeous break ates. I that case, we chose 1997.2 as a break ate: it is iee after the seco quarter of 1997 that the crisis evelos i earest (Rüffer et al., 2007). We also have use the methoolog eveloe b Zivot a Arews (1992) a Clemete et al. (1998) i orer to test uit roots with eogeous break ates. Details of uit root a coitegratio tests are available uo request from the authors. 8
ercet of the real GDP variaces. At log-ru horizo (16-20 erios), exteral shocks icreasigl matter, cofirmig the ersistece observe i the all erio samle. Such evolutios are like tothe icrease i the oeess egree i East Asia coutries sice the e-90s. 14 Over this sub-erio samle, ol Hog Kog exhibits a ecliig share of exteral shocks i the GDP variace. Such tre that cotrasts with the rise i its trae oeess over the same erio ma be ue to the stabilizig ifluece of Chia after 1997. Exteral shocks exert a stroger ifluece o roucer rice iex (PPI) tha o GDP. Iee, roucer rices are more roe to iteratioal iflueces tha cosumtio rices. From this ersective, the high imact of exteral shocks o PPI artl mirrors the risig tre i the trae oeess i ma East Asia coutries. Table B.2 suggests that the more a coutr is oee, the more exteral shocks exert a ifluece o omestic rices (see, for istace, Sigaore a Hog Kog). I coutries with lower trae oeess, the icreasig ifluece o exteral variables o PPI variace rests o trae secializatio i maufactures exorts (as i Chia, Jaa, a South Korea).As for the GDP, exteral shocks exert a ersistet ifluece o omestic rices. The sub-erio samle oes ot sigificatl chage the results. Cosistet with the icrease i the trae oeess after the Asia crisis, the shortru ifluece o exteral shocks icreases i all coutries excet Ioesia. The ifluece of exteral shocks o the omial exchage rates (NER thereafter) offers a ver ifferet icture i the two samles for the short-horizo (1-4 erios). Iee, while i the all erio samle exteral shocks accout for less tha 10 ercet of the NER variaces i six coutries, the umber falls to two coutries for the sub-erio samle. I other wors, the ifluece of exteral shocks has rise over the erio 1996Q1-2010Q4. At the log-ru horizo, the two samles suggest a ramatic icrease i the imact of exteral shocks. I the all erio, we ote that exteral shocks exlai more tha 25 ercet of the variace i all coutries. This ersistece of exteral shocks is cofirme i the sub-erio samle excet for Sigaore. The icrease i oil eeece of the regio seems to exlai this evolutio. Iee, the relative imortace of each exteral shocksuggests that East Asia coutries are more sesitive to real shocks tha to moetar a fiacial shocks. Iterestigl, the suberio samle (TablesB.4 to B.6) oes ot qualitativel chage this result.more recisel, Table B.4 shows that omestic GDP te to be more ifluece b real oil rices shocks a 15 14 The area is characterise b a ecrease of trae eeece o the US beefitig Southeast Asia a, though less so, the Asea. This itra-area trae shift is cofirme b (i) a strog eeece o Jaa, Chia a, to a lesser extet, Korea a Sigaore, a b (ii) a suremac loss of Jaa i favour of Chia o the regioal level, betwee 1996 a 2007. See, for examle, Zebregs (2004), Petri (2006) a Guillaumi (2009). 15 Ioesia is the ol coutr i our samle exhibitig a ecliig tre i trae oeess after 1998. 9
U.S. GDP oes at both short- a log-ru horizos. The imact of real oil rices shocks is stroger o PPI variaces. I all coutries, excet Chia, this shock accouts for more tha 20 ercet of the PPI variace at short-ru. As suggeste b its share i PPI variace at loghorizo (16-20 erios), this shock is articularl ersistet. The sub-erio samle shows a clear icrease i the ifluece of oil rices shocks o PPI. Fiall, i the two samles, variaces of omial exchage rates are mail exlaie b oil shocks at log horizo. Such evolutio mirrors the growig eeece of ma East Asia coutries to oil sice the e of 1990 s. The recet sub samle erio has bee marke b a ramatic icrease i the oil rice which has efiitivel exacerbate trasmissio effects of oil rice o omestic variables eseciall i oe ecoomies as most East Asia coutries. The icrease i the sesitivit of omestic variables to oil shocks is ver imortat i coutries bearig a ramatic eterioratio of their et oil trae balaces (exorts mius imorts) sice the e of 1990s : Hog Kog, South Korea, Jaa, a Chia. I the major art of our stuie coutries, U.S. GDP shocks exlai a lower share of omestic GDP variaces tha oil rices shocks over the all-erio samle. The sub-erio samle shows that the ifluece of U.S. GDP shocks ecreases i ma East Asia coutries for all horizos. Such evolutios are cosistet with two major chages that have occurei the iteratioal trae of our samle s coutries.first, sice the begiig of 90 s, itra-regioal trae has icreaseat the exese of the trae with the Uite States. The mai art of the eclie i U.S. share has occure after 2000. The seco major chage i the regio has bee the growig trae ifluece of Chia both at the worlwie level a regioal oe. If the weight of Chia i the total itra-regioal trae has icrease sice the begiig of the 1980 s, we ote a major acceleratio after 2000 for exorts. The higher share of Chia i itra-regioal trae has bee accomaie b a icreasig role of Chia i the East Asia coutries trae with other areas, articularl the Uite States.At the same time, trae comositio has chage i East Asia. O the oe ha, the share of arts a comoets i total trae has icrease. O the other ha, trae itegratio has bee accomaie b a growig similarit i the commoit comositio of exorts, excet for Ioesia (Petri, 2006; Guillaumi, 2009; Allegret a Essaai, 2011).These evolutios suggest a icreasig iirect ifluece of U.S. GDP shocks via the role of Chia i the regio. From this ersective, Allegret a Essaai (2011) fi that total itra-regioal imorts of Chia are coitegrate with the U.S. GDP, cofirmig this iirect ifluece. Variaces of roucer rices a omial exchage rates are weakl exlaie b U.S. GDP shocks i the two samles. The fiig relative to exchage rate coul be exlaie b the teac of East 10
Asia ecoomies to moitor exchage rates withi the regio a attemts to kee the relative value of their currecies i lie with the value of selecte regioal currecies. These cometitive ajustmets i exchage rates are allegel mae so as to maitai the cometitiveess of their exorts o globalmarkets. Iteratioal moetar shocks (Fe fus isturbaces) a iteratioal fiacial shocks (MSCI isturbaces) exert the weakest ifluece o omestic variables i most of our stuie coutries. This result hols whatever the samle erio a is i accorace with recet litterature o this issue (Maćkowiak, 2007; Moeta a Rüffer, 2009; Gimet, 2011). Desite recet rogress, East Asia coutries excet Hog Kog, Jaa, a Sigaore still exhibit low fiacial oeess iex (Pogsaar a Uteroberoerster, 2011). More recisel, usig the Chi a Ito s coutr rakig, i 2009, over a total umber of 169 coutries, the resective raks for our samle s coutries are the followig: Hog-Kog (1 st ), Jaa (1 st ), Sigaore (1 st ), Ioesia (72 s ), South Korea (90 th ), the Philiies (93 r ), Malasia (102 s ), Chia (111 th ), a Thaila (111 th ). 16 As a result, it s oubtful that fiacial oeess ca exlai the higher ifluece of exteral factors o omestic variables variaces. Usig a e facto measure of iteratioal fiacial itegratio oes ot qualitativel chage this result. I 2007, ol Hog Kog, Jaa, Sigaore, a Malasia ha a ratio (Stock of exteral assets + Stock of exteral liabilities) / GDP higher tha the uweighte average of emergig coutries. 17 4. The imact of exteral shocks o omestic variables Damic resoses of each omestic variable to the ifferet exteral shocks are eicte resectivel i figures C.1 to C.4a C.5 to C.8for the all-erio samle a the sub-erio samle resectivel. Tracig out the time aths of the effects of ure shocks o the set of omestic variables, imulse resoses allow us to aalze ot ol the cotemoraeous reactio to a secific shock but also the see of ajustmet of the ecoom. The extet to which iitial resoses a ajustmet iffer gives some iformatio o the feasibilit of a moetar uio. Real oil rice shock shoul egativel affect macroecoomic variables through ifferet trasmissio chaels. First of all, such shock iuces a sul-sie shock effect i which 16 Source: The Chi-Ito Iex, a e jure classificatio of fiacial oeess. Results are similar if we take 2007 as the referece ear. 17 Authors estimatios, relig o the uate a extee atabase of the Exteral Wealth of Natios Mark II atabase as escribe i Lae a Milesi-Ferretti (2007). 11
firms bear a icrease i their margial roucig costs. Seco, oil rice shocks are followe b wealth trasfer effect from et-imortig coutries to et-exortig oes. Fiall, as stresse b Berake et al. (1997), a ositive iovatio i real oil rice is followe b a restrictive moetar olic i orer to fight iflatioar ressure. Such moetar olic resose ma exert a egative ifluece o ecoomic activit. Tag et al. (2010) fi that sice 2003 a ositive oil rice shock has bee followe b a tight moetar olic i Chia. These trasmissio chaels suggest a execte egative resose of GDP i the aftermath of a ositive oil rice shock at least i et oil-imortig coutries. However, our results, i case of resoses stasticall sigificat, lea to a oosite relatioshi: i all stuie coutries, a ositive real oil rice shock icreases the GDP. The shock is log-live i all coutries, excet for South Korea a Sigaore. The ajustmet of GDP occurs well beo five quarters. Our results are cosistet with Kilia (2009: 1054) who istiguishes ifferet tes of oil shocks: oil sul shocks (rive b ressures o the curret hsical availabilit of crue oil), recautioar ema shocks (exlaie b a sigificat chage i the recautioar ema for oil) a aggregate ema shocks (rive b the global busiess ccle). While the two first shocks ma lea to egative resose of ecoomic activit, the latter ma lea to a ositive oe. Sice the e of 90 s, oil rices shocks are mail rive b ema shocks. As a result, takig ito accout the role lae b exorts i the rate of growth of East Asia ecoomies, the icrease i oil rices has bee mail origiate b a higher growth i avace coutries that, i tur, has lea to a icrease i exorts a the i the reveue of Asia coutries. 18 The sub-erio samle cofirms the revious fiigs. However, for ma coutries, we ote both stroger resoses o imact of the oil shocks a fluctuatios of GDP. As execte, i all coutries a for the two samles, omestic rouctio rices icrease after the real oil rices shocks. It is imortat to stress that resoses of PPI are similar across our stuie coutries both i terms of cotemoraeous reactios a ersistece. I all coutries excet for the Philiies (i the all-erio samle), omestic currecies have areciate i the aftermath of the oil shocks. Such result is ot surrisig for the mai oil exortig ecoomies i the regio (Sigaore, Malasia, a Ioesia). For other coutries, the areciatio ma rest o the ositive relatioshi betwee oil rices icreases a worl 18 For istace, as the mai egie of growth i the area, recall that Chiese exort to Euroea Uio-27 a the Uite States amout to arou 38 ercet of its total exorts (WTO, 2009). At the same time, oil ema from the Uite States a OECD Euroe accout for 40 ercet of the worl ema (US Deartmet of Eerg, EIA, 2010). 12
growth. Iee, East Asia coutries ca rea the beefits of a higher regioal GDP i terms of higher exort reveues which i tur exert a uwar ressure o the NER. As a rox of ecoomic activit i avace coutries, we exect a ositive resose of omestic GDP to a ositive iovatio o U.S. GDP. Iee, the high trae oeess egree of East Asia coutries makes them ver sesitive to the trae chael. This rocclical reactio is verifie i all stuie coutries. However, the size of the GDP resoses to the U.S. GDP shocks remais arrow. The sub-erio samle oes ot qualitativel chage results, eve if resoses of omestic GDP to U.S. GDP shock are less accetuate. This result cofirms the ecreasig irect ifluece of the Uite States, a, more geerall, of avace coutries, i the busiess ccles fluctuatios of Asia ecoomies (Kose a Prasa, 2010).I the two samles, U.S. GDP shocks o ot exert a sigificat ecoomic ifluece o omestic rices. As East Asia coutries have high levels of rouctive caacit, sul effects ma be reomiat relative to ema oes o rices behaviour, exlaiig this weak ifluece.fiall, ositive U.S. GDP shocks are followe b a areciatio of omestic currecies (excet i Chia for the all-erio samle). Iee, Asia coutries beefit from a icrease i exorts that, i tur, imroves their growth erformace a the te to areciate their currecies.however, i all cases, resoses are short-live. Similar results are obtaie i the sub-erio samle. Overall, U.S. GDP shock exerts a weak ifluece o omial exchage rates i the regio. I the all-erio samle, GDP resoses to the exteral moetar shock are either isigificat from a statistical staoit or short-live. The sub-erio samle accetuates this fiig. Ol the Philiies exhibit a cosistet egative resose to Fe Fus shocks. The resoses of GDP i other coutries suggest that the U.S. moetar olic oes ot exert a sigificat imact o ecoomic activit i East Asia coutries. I the two samles, omestic rices a omial exchage rates are weakl affecte b Fe Fus shocks. This result mirrors the weak ifluece of U.S. moetar olic o the ecoomic activit i the regio. I aitio, cocerig the exchage rates, our result is i lie with Maćkowiak (2007) who fis sigificat resoses ol at ver short-term. The exteral fiacial shock oes ot seem to exert a sigificat imact o omestic GDP a rices i the regio, eve i the sub-erio samle. I other wors, esite rogress i the fiacial eeeig i East a South-East Asia coutries sice the e 90s, wealth effects remai weak i these ecoomies. The ol excetios are the more fiacial eveloe coutries such as Jaa a Sigaore where ositive iovatios o MSCI are followe b a short-live icrease i GDP. Nomial exchage rates are weakl affecte b the 13
iteratioal fiacial shock.the short-term resoses are isigificat i ma coutries excet Ioesia a South Korea where the NER ereciates.overall, these last results cofirm the relative low exositio of East Asia ecoomies to fiacial shocks mail exlaie b their relative low fiacial oeess. 5. Correlatiosof Domestic Variables Resoses to Exteral Shocks Recet evelomets i the Euroea Moetar Uio have show that a ke criterio for the success of a moetar uio is that the resoses of exteral shocks which hit the ecoomies shoul be reasoabl well correlate. I orer to ivestigate more eel this issue, we calculate the correlatios of omestic variables resoses to exteral shocks, followig the work of Ageor et al. (1999) a Caova (2005). Iee, ositive correlatios ca be iterrete as reflectig smmetric resoses while egative or ot statisticall ifferet from zero correlatios will reflect asmmetric reoses.correlatios of omestic variables resoses to exteral shocks are eicte resectivel i tables D.1 to D.3 a D.4 to D.6 for the all-erio samle a the sub-erio samle resectivel. The two samles exhibit a cotrastig icture cocerig the correlatio of GDP resoses to real oil rices shock. More recisel, eve if correlatios are ositive for ma airs of coutries i the all-erio samle (for istace Ioesia-Chia; Malasia-Ioesia; Philiies-Hog Kog), o clear tre emerges. The sub-erio samle offers a more coheret icture. More recisel, two sub-grous are istiguishe. First, New iustrialize ecoomies (NIEs) Hog Kog, Sigaore, a South Korea te to have higher correlatios betwee them a also with Chia. Seco, coutries from the ASEAN have higher bilateral correlatios of GDP resoses to oil shock. Globall seakig, the egree of correlatio of GDP resoses to U.S. GDP shock is close to that fou forthe oil rice shock. Excet the Philiies, coutries whose trae secializatio is foue o maufactures are eseciall correlate with other coutries ithe regio (Chia, Jaa, Hog Kog, South Korea). These smmetric resoses suggest that more avace coutries i the regio te to trasmit U.S. GDP shocks to other ecoomies a cofirm the iirect ifluece exerte b the Uite States. Correlatios of GDP resoses to the iteratioal moetar olic shock are ver ifferet i the two samles. I the sub-erio samle, we see a strikig ecrease i the umber of smmetric resoses mail exlaie b Chia a Hog Kog. Thisecrease 14
stems from the move of exchage rate regimes towars higher flexibilit 19, whilechia a Hog Kog have ket their rigi exchage rate regime. The sub-erio samle shows a eve greater ecrease i the egree of smmetr of the GDP resoses to the iteratioal fiacial shock. This result is cosistet with the low egreeof iteratioal fiacial itegratio fou i the regio. I aitio, recurret chages i caital cotrols measures sice the Asia crisis i coutries such as Ioesia, Malasia, South Korea, a Thaila have certail exerte a egative imact o this egree of smmetr. I the two samles, omestic rices resoses to real oil rices shock te to be smmetric for the major art of our stuie coutries. Chia a Hog Kog are outliers. Higher correlatios are observe i oil exortig coutries with major oil imortig coutries. From this ersective, real oil rices shocks create itereecies i the regio.tables D.2 a D.5 isla few smmetric resoses of omestic rices to the U.S. GDP shocks i the two samles. We observe some airwises of ositive correlatios (eseciall for Malasia a Thaila i the all-erio samle; a Sigaore i the sub-erio oe). Resoses of roucer rices (PPI) to the Fe Fus shocks are weakl correlate i the two samles. More recisel, if we cosier all exteral shocks a all resoses correlatios, we see that PPI resoses to the exteral moetar shocks are i most cases asmmetric. I the two samles, more fiaciall oee coutries Hog Kog, Jaa, Sigaore, a South Korea te to have more smmetric resoses with other East Asia ecoomies. Exteral fiacial shocks exhibit lower ositive correlatios of PPI resoses i the all-erio samle. At the oositve, resoses aear much more smmetric over the erio 1996Q1-2010Q4. Like the exteral moetar shock, resoses to the exteral fiacial shock show that more fiaciall oee coutries have higher correlatios with other ecoomies.overall, these results suggest that rices correlatios have imrove after 1996 i East Asia ecoomies. I the two samles, resoses of omial exchage rates (NER) to real oil rice shocks are the most correlate. Such result is cosistet with the icreasig oil eeece of the regio. I aitio, as stresse above, South-East Asia oil exorters have strog relatioshis with other coutries i the regio. While Chia is a outlier i the all-erio samle, this coutr aears sigificatl more correlate with other ecoomies i the sub-erio samle. This 19 I the aftermath of the Asia fiacial crisis, some coutries move towars more flexible arragemets (Ioesia, the Philiies, South Korea, a Thaila) while others abie their exchage rate regimes (Chia (covetioal eg), Hog Kog (har eg), Sigaore (maage floatig) a Jaa (floatig regime). Malasia exhibits a more cotrastig evolutio: immeiatel after the Asia crisis the authorities aote a floatig regime, but, i the aftermath of the ecisio to cotrol caital movemets (Setember 1998), Malasia move towars a covetioal eg util the e of 1999 whe the chose itermeiate regime. See: the Reihart a Rogoff s classificatio util 2007; the Bubula a Ötker-Robe s classificatio util 2006; a the IMF s Aual Reort after 2008. All these sources are e facto classificatio. 15
fiig is cosistet with chages i the rices cotroles strateg followe b Chiese authorities. As Chia met icreasig ifficulties to cotrol raw material rices, from 1998 to 2001, Chiese authorities imlemete reforms liberalizig oil ricig sstem. 20 As a cosequece, omestic oil rices are icreasigl correlate tothe worl market. I tur, this chage ieerg rices strateg ma have favourea icreasig smmetr i the resoses of Chia vis-à-vis other East Asia coutries. NER resoses of U.S. GDP shocks show high correlatio egrees i the two samles excet for Chia. As stresse above, the fixe exchage rate regime a strict caital cotrols i this coutr ma rereset imeimets to romote covergece towars eighbourigs coutries. New iustrialize coutries a ASEAN ecoomies exhibit strog correlatios. NER resoses to the exteral moetar shock isla more ositive correlatios i the all-erio samle tha i the sub-erio oe. Such result is surrisig if we cosier the covergece of ma stuie coutries towars more flexible exchage rate arragemets after 2000. The comariso of the two samles suggests that the ecrease i the correlatio egrees over the erio 1996Q1-2010Q4 ma be exlaie b coutries with extreme regimes (Chia a Hog Kog o the oe ha; Jaa a Sigaore o the other ha) which are cosistetl less ositivel correlate with other ecoomies i the regio.this fiig suggests that the move towars more flexible regimes occurs isie itermeiate regimes. The exteral fiacial shock iuces eseciall weak smmetric resoses of NER i the two samles, revealig a weak ifluece of fiacial variables o omial exchage rates. 6. Coclusio The aim of this aer was to quatif the imortace of a broa set of exteral shocks i omestic variables fluctuatios for a samle of East Asia coutries. I this resect,it extes the literature i several imesios. B cosierig the imact of abroa set of exogeous shocks o East Asia ecoomies i a uifie framework, this aerfirstl roviesa comrehesive icture of the overall cotributio of exteral shocks to the variaces of omestic variables i these ecoomies, a of the relative imortace of each te ofshock. Fiall, the existig aers that focus o East Asia ha beecocere above all with the imact of trae orforeig iterest rate shocks. We ocumet i aitio the amic resose of omestic variables to fiacial stress i these ecoomies.the geeral icture that emerges is that exteral shocksexert meaigful effects o omestic variables i East Asia, eseciall 20 For more etails, see Tag et al. (2010) a Duaet al. (2010). 16
i the most recet erio. To the extet that these shocks cover the mostimortat exteral cotigecies face b East Asia coutries, our results suggest that omestic variables are largel more ifluece b real exteral shocks tha b exteral moetar a fiacial shocks. Our results o variace ecomositios a imulse resoses fuctios show that East Asia coutries aear eseciall sesitive to the trae chael. Correlatios of resoses of omestic variables to exteral shocks islatwo mai fiigs. Firstl, i the two erio samles, resoses to exteral real shocks are eseciall ositivel correlate. As these shocks are at the same time the most relevat for our stuie coutries, such smmetric resoses make a moetar uio suitable withi the regio. Jaa a ew iustrialize coutries icluig Chia are the mai rivig forces exlaiig such correlatios. Secol, i the sub-erio samle, resoses of omestic variables to exteral moetar a fiacial shocks are less smmetric, thus justifig the reiforcemet of moetar a fiacial cooeratio betwee the area s coutries. We attribute this result to a higher iversit i the exchage rate regimes i the aftermath of the Asia crisis, askawai (2009) a Chow (2011) who stress the revalece of iverse a ucooriate exchage rate arragemets after the Asia fiacial crisis. I this resect, our fiigs alsoquestio the Chia s omiace hothesis (Fratzcher a Mehl, 2011; Ito, 2010)a the stabilizig role lae bthe remibi sice mi-2000 s. I aitio, there is o covergece i the moetar regimes i the regio. For istace, the aalsis of the correlatios amog iflatio targeters coutries 21 oes ot reveal a articular high egree of smmetr i the resoses of omestic variables to exteral shocks. This leas us to a more uace ositio tha Rose (2011) about the abilit of iflatio targetig to romote schroizatio. 21 South Korea (Jauar 2000); Thaila (Ma 2000); the Philiies (Jauar 2002); a Ioesia (Jul 2005). Date of iflatio targetig aotio i the brackets. 17
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Aeix A Data escritio The ata use i sectio 4 are quarterl, coverig the erio 1990Q1-2009Q4. The samle iclues the followig coutries: Chia, South Korea, Hog Kog SAR, Ioesia, Jaa, Malasia, Philiies, Sigaore, a Thaila. Bruei, Camboia, Mamar, a Vietam were remove from the samle because of the lack of available ata. GDP (or, if uavailable, iustrial rouctio) ata, roucer rice iex a omial exchage rates come from the IMF s Iteratioal Fiacial Statistics. Oil rice matches the Bret oil rice take from the IMF s Iteratioal Fiacial Statistics a the atabase of EIA (Eerg Iformatio Amiistratio). Real oil rice is obtaie b eflatig oil rice usig the Worl GDP eflator take from the Worl Bak atabase. The U.S. short-term iterest rate (Fe Fus) comes from the atabase of Sait-Louis Fe. MSCI iex comes from the Datastream atabase. Each of the estimate SVAR moel iclues a ummcrisis variable so as to cosier the Asia crisis. Itroucig such a variable allows us to cotrol aberrat oits. Its value is set to 1 for quarters 1997Q2 a 1998Q3, a to 0 the rest of the time. We also itrouce a umm variable which equal to 1 from 2008Q3 to 2009Q2 a 0 otherwise i orer to take ito accout the effects of the worl crisis starte with the subrime crisis. 21