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

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  • Raghavan, Mala
  • Athanasopoulos, George
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.

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  • Raghavan, Mala & Athanasopoulos, George, 2019. "Analysis of shock transmissions to a small open emerging economy using a SVARMA model," Economic Modelling, Elsevier, vol. 77(C), pages 187-203.
    • Handle: RePEc:eee:ecmode:v:77:y:2019:i:c:p:187-203
    DOI: 10.1016/j.econmod.2018.09.004
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    Cited by:

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    3. Titus Ayobami Ojeyinka & Dauda Olalekan Yinusa, 2023. "External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 132-153, January.

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    More about this item

    Keywords

    SVARMA models; Open economy macroeconomics; ASEAN; Shock transmissions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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