Thi Mai Lien Dau and Yuthana Sethapramote

Year: 2019 January, Volume 28 No. 2
Pages: 30–51

This paper aims to comprehensively examine fiscal and monetary policies spillovers to real GDP and inflation in ASEAN-5 countries. We examine the effects of shocks from each of the ASEAN members and advanced economies by employing the global vector autoregression (GVAR) model because it allows us to investigate this issue in a multinational system. The empirical results show several important findings. Generally, both internal and external fiscal and monetary spillovers have a significant effect on all ASEAN-5 countries, although internal monetary spillover seems to be stronger than internal fiscal spillovers. At country level, out of the five ASEAN countries, Indonesia’s variables of interest are less affected by external policy shocks. Regarding fiscal spillovers, expansionary fiscal shocks cause a significant increase in real GDP of ASEAN-5 countries. Particularity, fiscal spillovers from other East Asia countries (in particular, China) to ASEAN-5 countries have a much stronger effect than those from the advanced countries. Regarding monetary spillover, the effects of monetary spillover from advanced economies (especially, the U.S. and European countries) are much larger than those of the East Asia countries. However, the effects of monetary spillovers on ASEAN countries’ real GDP and inflation are ambiguous, and we found negative impacts of internal and external monetary spillovers (from some ASEAN countries, China, and advanced economies) on ASEAN-5’s real GDP. The inverse impacts of policy spillovers implicate the need for policy coordination at both regional and global levels.