The Spillovers from US Monetary Policy to Asian Economies

Abstract

Economic integration in Asia has been advanced over the past decades through international commitments. Interdependent relationship between countries has created opportunities for propagating monetary policy shocks among countries. Particularly, the spillovers of monetary policy from a country which has important role in the global economy like the US to Asian economies. In this paper, we investigate the spillovers from US monetary policy to selected Asian economies by employing the BVAR model. Georgiadis (2016) suggested that the magnitude of spillovers depends on recipient country’s factors such as the extent of economic integration, exchange rate regimes, labour market rigidities, industry structure, and participation in global value chains. Hence, we analyze the difference in magnitude of US monetary policy spillover to Asian economies through categorizing country characteristics. The results of this paper indicate that due to heterogeneities across Asian countries, the magnitude of spillovers on each country is different. In particular, developing countries which adopt pegged regime, more integrated in trade, have stronger responses to shocks from the US monetary policy. Besides, countries open up to international capital flows would be highly vulnerable to external shocks because these countries are still lacking in the infrastructure required, appropriate controls, regulatory apparatus and macroeconomic frameworks.