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

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Raghavan, M and Athanasopoulos, G 2018 , Analysis of shock transmissions to a small open emerging economy using a SVARMA model.

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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 different policy regimes. Narrower confidence 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 financial crisis. Historical and
variance decompositions highlight Malaysia's high exposure to foreign shocks. The effects
of these shocks change over time under different 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.

Item Type: Report (Discussion Paper)
Authors/Creators:Raghavan, M and Athanasopoulos, G
Keywords: SVARMA models, Open Economy Macroeconomics, ASEAN, Shock transmissions JEL classification numbers: C32, F41, F62, E52
Publisher: University of Tasmania
Copyright Information:

Copyright 2018 University of Tasmania

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