Financial stress, economic activity and monetary policy in the ASEAN-5 economies

Tng, B.H. and Kwek, K.T. (2015) Financial stress, economic activity and monetary policy in the ASEAN-5 economies. Applied Economics, 47 (48). pp. 5169-5185. ISSN 0003-6846, DOI

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This article uses a structural vector autoregression approach to analyse the impact of financial stress on the economy and the relationship between monetary policy and financial stress in the ASEAN-5 economies (Indonesia, Malaysia, Philippines, Singapore and Thailand). We find that an increase in financial stress leads to tighter credit conditions and lower economic activity in all five countries. The estimated impact on the real economy displays an initial rapid decline followed by a gradual dissipation. In Malaysia, the Philippines and Thailand, the central banks tend to reduce policy interest rates (IRs) when financial stress increases, although there is substantial cross-country variation in the magnitude and time dynamics. The lower policy IRs are found to have little significant effects in lowering financial stress, but are still effective in stimulating economic activity through other channels. These findings imply that easing monetary policy is likely necessary but insufficient to address growth slowdowns associated with financial stress. Monetary easing should instead be complemented with other policy measures which are targeted at restoring financial stress to normal levels.

Item Type: Article
Uncontrolled Keywords: Financial stress; Monetary policy; Small open economy
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Divisions: Faculty of Economics & Administration
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 02 Oct 2018 06:04
Last Modified: 02 Oct 2018 06:04

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