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

journal contribution
posted on 2023-05-19, 21:17 authored by Mala RaghavanMala Raghavan, Athanasopoulos, G
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.

History

Publication title

Economic Modelling

Volume

77

Pagination

187-203

ISSN

0264-9993

Department/School

TSBE

Publisher

Elsevier Science Bv

Place of publication

Po Box 211, Amsterdam, Netherlands, 1000 Ae

Rights statement

Copyright 2018 Elsevier B.V.

Repository Status

  • Restricted

Socio-economic Objectives

Monetary policy

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