Spillovers of United States and People's Republic of China Shocks on Small Open Economies: The Case of Indonesia

Abstract

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Propagation of Economic Shocks from the United States, China, the European Union, and Japan to Selected Asian Economies: Does the Global Value Chain Matters?

“…The literature on comovements or interdependence is often based on formal approaches, including CGE, as it facilitates the creation and simulation of scenarios of potential shocks (Caceres et al, 2019;Itakura, 2020). Other approaches employ impulse response functions (IRFs) to analyze the impact of shocks on economic growth, monetary (Barnichon and Brownlees, 2019), financial, and energy prices (Punzi, 2019) on the economic growth (Harahap and Bary, 2017), exports (Aslan and Acikgoz, 2021), and demand for labor (Vandenbussche et al, 2019). Structural VAR (Dungey et al, 2018), Global VAR (Raghavan and Devadason, 2020b), panel VAR (Punzi, 2019), and Bayesian BVAR (da Silva Souza and de Mattos, 2022) are some common approaches to estimating impacts from shocks.…”

“…Building on a global VAR model, Harahap and Bary (2017) show that a 1% shock (decline) in China's real GDP will follow a 0.52% decrease in Indonesia's real GDP. Caceres et al (2019) investigate the impact of bilateral tariff escalation between China and the US using a multi-sector CGE model showing that ASEAN countries are vulnerable to the trade war.…”

“…The impact on economic growth from monetary shocks on advanced countries is amplified through the trade channel, while the impact on developing countries is magnified due to vulnerability (risk). Harahap and Bary (2017) noted that economic growth in Asia countries (i.e., Indonesia) is exposed to growth surprises from China and monetary shocks from the US transmitted through the financial channel. The increasing vulnerability of Asian countries to global superpowers increased the awareness of policymakers on the risk and the potential impact on growth from foreign policies.…”

The transmission of international shocks to CIS economies: A global VAR approach

“…5 Ordering of the countries for shock orthogonalization is challenging given that, asGalesi & Lombardi (2009) argue, "in such a multi-country setting there is not a clear economical a priori knowledge which can establish a reasonable ordering of the countries. "6 For the technical procedure of model estimation, we use an open source Matlab toolbox for modeling DdPS-GVAR provided bySmith & Galesi (2014).7 See, for exampleGalesi & Lombardi (2009),Harahap et al (2016) and Feldkircher (2013).8 VARX* frameworks with weakly exogenous I (1) regressors have been developed byHarbo et al (1998) andPesaran et al (2000).…”

The Transmission of International Shocks to CIS Economies: A Global VAR Approach

“…5 Ordering of the countries for shock orthogonalization is challenging given that, asGalesi & Lombardi (2009) argue, "in such a multi-country setting there is not a clear economical a priori knowledge which can establish a reasonable ordering of the countries. "6 For the technical procedure of model estimation, we use an open source Matlab toolbox for modeling DdPS-GVAR provided bySmith & Galesi (2014).7 See, for exampleGalesi & Lombardi (2009),Harahap et al (2016) and Feldkircher (2013).8 VARX* frameworks with weakly exogenous I (1) regressors have been developed byHarbo et al (1998) andPesaran et al (2000).…”