The Transmission of External Shocks in Asia: Country Characteristics and Policy Responses
The Transmission of External Shocks in Asia: Country Characteristics and Policy Responses

Author: Mr.Pragyan Deb

Publisher: International Monetary Fund

Published: 2021-01-08

Total Pages: 24

ISBN-13: 1513566113

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Asian economies are increasingly integrated to the global economy through trade and financial linkages, exposing them to the international financial cycle. This paper explores how external shocks are transmitted to Asian economies and whether the use of policies, such as the monetary policy interest rate, foreign exchange intervention (FXI) and macroprudential measures (MPMs), can mitigate the impact of these external shocks. It uses panel quantile regressions on a sample of 14 Asian advanced and emerging economies (AEs and EMs) to assess the impact of financial and real shocks on investment and GDP growth at the median and 5th percentile tail. It finds that external financial shocks tend to have a larger effect on Asian economies than real shocks, and that the main transmission channels through which shocks are propagated are capital flows (particularly via corporate and bank balance sheets) for EMs, and credit for AEs. It also finds evidence that for Asian EMs, FXI may help dampen the capital flows and real exchange rate channels and mitigate financial shocks in the short run, and monetary policy transmission tends to be relatively weak; meanwhile MPMs can help mitigate the credit channel for both AEs and EMs.

Monetary Policy Responses of Asian Countries to Spillovers from Us Monetary Policy
Monetary Policy Responses of Asian Countries to Spillovers from Us Monetary Policy

Author: Trinh T.T Pham

Publisher:

Published: 2019

Total Pages: 0

ISBN-13:

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Regional integration in Asia has been considerably enhanced over the past 20)years or so. Whether integration helps Asian countries reduce their vulnerability to external shocks or is a channel for spreading external shocks remains an open question. This paper assesses the spillovers from US monetary policy shocks to Asian countries while taking into account country-specific characteristics in explaining differences in timing and magnitude of responses across Asian countries. The results indicate that policy interest rates in Asian countries generally respond to innovations in the Fed rate in the same direction, but typically with a lag of one quarter. However, the size of the responses varies across Asian countries with respect to country-specific characteristics. These results suggest that an independent monetary policy may not be feasible for an Asian developing country that adopts a pegged rate regime while being extensively integrated into the world economy. However, the hypothesis of the impossible trinity may not be relevant in the case of China.

Global Banks and International Shock Transmission
Global Banks and International Shock Transmission

Author: Nicola Cetorelli

Publisher: DIANE Publishing

Published: 2010-11

Total Pages: 41

ISBN-13: 1437933874

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Global banks played a significant role in transmitting the 2007-09 financial crisis to emerging-market (EM) economies. The authors examine adverse liquidity shocks on main developed-country banking systems and their relationships to EM across Europe, Asia, and Latin Amer., isolating loan supply from loan demand effects. Loan supply in EM across Europe, Asia, and Latin Amer. was affected significantly through three separate channels: (1) a contraction in direct, cross-border lending by foreign banks; (2) a contraction in local lending by foreign banks¿ affiliates in EM; and (3) a contraction in loan supply by domestic banks, resulting from the funding shock to their balance sheets induced by the decline in interbank, cross-border lending. Charts and tables.

Toward an Integrated Policy Framework
Toward an Integrated Policy Framework

Author: International Monetary Fund

Publisher: INTERNATIONAL MONETARY FUND

Published: 2020-10-08

Total Pages: 54

ISBN-13: 9781513558769

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Policymakers often face difficult tradeoffs in pursuing domestic and external stabilization objectives. The paper reflects staff’s work to advance the understanding of the policy options and tradeoffs available to policymakers in a systematic and analytical way. The paper recognizes that the optimal path of the IPF tools depends on structural characteristics and fiscal policies. The operational implications of IPF findings require careful consideration. Developing safeguards to minimize the risk of inappropriate use of IPF policies will be essential. Staff remains guided by the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows.

Monetary Policy Transmission in Emerging Markets and Developing Economies
Monetary Policy Transmission in Emerging Markets and Developing Economies

Author: Mr.Luis Brandao-Marques

Publisher: International Monetary Fund

Published: 2020-02-21

Total Pages: 54

ISBN-13: 1513529730

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Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.