How did the Asian economy cope with the global financial crisis and recession? A revaluation and review

Abstract

In the initial stages, Asian economies remained insulated from the global financial crisis of 2007-09 and there seemed to be a possibility that Asia would find easy passage through it. But an outward-oriented group of economies could not possibly be immune from the crisis for long, and as the crisis intensified, Asian economies, too, found themselves getting affected. This article delves into why the Asian economies were only moderately affected in the early stages of the global financial crisis, but, subsequently, the stock markets and currencies in the region came under strong downward pressure. The majority of the Asian economies, particularly the newly industrialized economies (NIEs), experienced sharp GDP contractions. The decoupling theory lost its relevance. However, the Asian economies came up with strong and timely countercyclical responses and were the first to recover from the global financial crisis. They not only spearheaded the global recovery, but contributed significantly to it.

The Demand for Money in Asia: Some Further Evidence

“…4, No. 8;2012 four-variable system, we employ the lag order of two for India, Korea and Malaysia, three for the Philippines, and Sri Lanka, one for Pakistan, and five for Thailand, respectively. -Lenum (1992).…”

“…4, No. 8;2012 The regress and in Table 5 is the change in real M2 balances as the dependent variable. Focusing on these results, we conclude that the short-run impact of any explanatory variable on money demand is positive (negative) if the sum of the statistically significant point estimates of the covariate in question in equation (4) Vol.…”

“…4, No. 8;2012 In sum, our findings imply (a) that not noticing the cointegration of the variables would have introduced a misspecification in the underlying dynamic structure; (b) that use of interest rate as the opportunity cost of holding money performs better than the expected inflation in the estimated Asian money demand relations; (c) that there exist market forces in the money market sector that operate to restore long-run equilibrium after a short-run deviation; (d) that, on average, it takes more than three years for 50 per cent of the deviations from long-run equilibrium (the cointegration equation) to be corrected, although much longer for India (see Table 6); (e) that the mean time lags suggest that real balances react faster to changes in domestic income than to changes in exchange rates; (f) that real balances react faster to exchange rate changes than to interest rate changes, therefore, had we focused only on the traditional variables (income and interest rate), we would have obtained more inference bias and missed the key role that exchange rates play in the demand for money function of Asian economies; (g) that linear error correction model is quite likely a good approximation of the short-run dynamics because both the KSS and Solis methods revealed insignificant t-values and (f) that the full adjustment of real balances to changes in the regressors may take between six to thirty-eight quarters, depending on the country.…”

“…4, No. 8;2012 (negative). For each country, a parsimonious and statistically acceptable model is obtained through the simplification of a fifth-order ECM.…”

“…Also, as the housing bubble in the United States that started in August 2007 resulted into a worst world-wide financial and economic upheaval between 2007and 2009(Das, 2012, it forced Asian economies into significant depreciations. Further, after the G-20 Summit in June 2010, these economies started a buildup of foreign exchange reserves.…”