Revisiting the Impact of Financial Crisis on the ASEAN- 5 Countries: Shock Amplification Perspective
DOI:
https://doi.org/10.66445/twe.v44i3.282947Keywords:
Business Fluctuations, Financial Markets and the Macroeconomy, Financial CrisesAbstract
This study aims to revisit the impact of the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC) in the ASEAN-5 countries from 1990 to 2020. By addressing the long-run economic trajectory, the size of shock amplification is manifested by the divergence of aggregate output from potential output in the business cycle due to an economic shock. This study utilizes Fully Modified Ordinary Least Squares (FMOLS), where the results indicate that both crises generated negative output gaps at the group level, with the Global Financial Crisis producing a substantially larger long-run deviation from potential output than the Asian Financial Crisis. The interaction analysis further shows that while monetary policy acted as a shock absorber during the Asian Financial Crisis, key macroeconomic variables, particularly trade openness and financial development, served as important channels of shock amplification during the Global Financial Crisis. At the individual country level, the results reveal pronounced heterogeneity in shock amplification across the ASEAN-5 economies. Indonesia experienced the largest amplification during the Asian Financial Crisis, whereas Singapore recorded the strongest amplification during the Global Financial Crisis. The results highlight that the differences in economic structure, financial exposure, and external integration shape the transmission and amplification of crises across countries and periods. Strengthening financial sector resilience and managing exposure to external trade shocks are crucial for reducing long-run output losses during future global financial disruptions.
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