would like to thank Gary Koop for valuable advice and Rainer Schüssler for sharing his Matlab code on dynamic Bayesian learning. I would also like to thank Joscha Beckmann, Julia Darby and Donna Irving for help with the data and Aubrey Poon for useful comments on optimising code performance. I would also like to thank participants at the 12th Annual Rimini Bayesian Workshop and seminar attendees at the University of Strathclyde for useful comments. Financial support from the Economic and Social Research Council under grant ES/J500136/1 is gratefully acknowledged as is a Royal Economic Society conference grant.

No abstract

Policymakers have been debating for over a decade whether Asia is decoupling from the US. Increasingly, deepening regional integration is cited as a possible driver of this decoupling. Using large Bayesian Panel Vector Autoregressions, estimated over different subperiods, we jointly examine bilateral macro-financial interdependencies between Asia Pacific countries and between each Asia Pacific country and the US. We uncover no evidence of decoupling. Instead, we find that both global and regional interdependencies deepened following the Asian financial crisis, before receding after the Global financial crisis. We also show that while US shocks are important, attention should also be devoted to regional shocks which play a large role in Asia Pacific countries across all subperiods considered. Our results also suggest that there have been shifts in the relative importance of different transmission channels over time. Following the Asian financial crisis, as regional interdependencies deepened, US financial shocks began to play a larger role than US macroeconomic shocks. These results support the view that rising intra-regional trade contributed to a fall in the importance of US macroeconomic shocks. They are also consistent with research suggesting that strong, common global financial linkages increase the synchronization of Asian regional business cycles.