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

Raghavan, M ORCID: 0000-0002-4123-5004 and Athanasopoulos, G 2019 , 'Analysis of shock transmissions to a small open emerging economy using a SVARMA model' , Economic Modelling, vol. 77 , pp. 187-203 , doi: 10.1016/j.econmod.2018.09.004.

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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 decomposition and variance decomposition allow contrast of shocks propagating under different policy regimes. Malaysia is highly exposed to foreign shocks, particularly under the managed float exchange rate system. 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: Article
Authors/Creators:Raghavan, M and Athanasopoulos, G
Keywords: SVARMA models, open economy macroeconomics, ASEAN, shock transmissions
Journal or Publication Title: Economic Modelling
Publisher: Elsevier Science Bv
ISSN: 0264-9993
DOI / ID Number: 10.1016/j.econmod.2018.09.004
Copyright Information:

Copyright 2018 Elsevier B.V.

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