External Shocks and Regime Shift of ASEAN Economies
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Abstract
This paper studied the effects of external shocks on the ASEAN economies. In this non-parametric study, we analyzed three regimes: GDP growth, interest, and exchange rates. We examined 677 weeks of spot exchange rates of ten currencies, thirty years of inflation and GDP growth rates in the ASEAN and tested their volatility to show regime shift. We employed the Dirac delta function to detect impulse response to external shocks. For GDP growth in the ASEAN, Brunei, Indonesia and Singapore are least effected by external shocks. However, all ASEAN countries are vulnerable to exchange rate regime shift (p < 0.0422). Cambodia (p = 0.0681), Laos (p = 0.1379) and Vietnam (p = 0.0599) faced the risk of regime change in inflation compared to the group average of p = 0.5154. We recommend stakeholders to use China as an economic buffer because China shows high level of stability in all three regimes that we examined. The large size of China’s economy, high purchasing power, and stable currency of China may help ASEAN countries to reduce the effect of shocks from western markets.
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