U.S. Monetary Policy Spillovers and Macroeconomic Adjustment in ASEAN-4
DOI:
https://doi.org/10.23917/jep.v27i1.13920Keywords:
Federal Funds Rate, monetary policy spillover, Vector Autoregression, Impulse Response Function, Forecast Error Variance DecompositionAbstract
The increase in the Federal Funds Rate (FFR) by the United States increases the potential for spillovers to the macroeconomic stability of developing countries, particularly in the ASEAN region, which has a high level of trade openness and financial integration. This study aims to analyze the transmission mechanism of US monetary policy spillovers to macroeconomic fundamentals in Indonesia, Malaysia, the Philippines, and Thailand through the interest rate, exchange rate, and investment channels. The study uses quarterly data for the 2005–2024 period using a Vector Autoregression (VAR) approach supported by the Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) to evaluate the dynamic relationships, responses to shocks, and the relative contribution of each variable. The results show that US monetary policy spillovers are heterogeneous and are transmitted more predominantly through the monetary channel than the real sector. VAR estimates indicate that the Federal Funds Rate (FFR) transmission is most consistent through the domestic interest rate channel in Malaysia, the Philippines, and Thailand, while Indonesia is more responsive through the exchange rate channel to inflation. However, this influence does not continue significantly on investment or economic growth. The IRF analysis shows that Indonesia, the Philippines, and Thailand exhibit convergent adjustment mechanisms to FFR shocks, while Malaysia exhibits an unstable response. The FEVD results confirm that variations in economic growth in Indonesia, the Philippines, and Thailand are still dominated by domestic shocks. This finding confirms that the effectiveness of global monetary policy transmission is largely determined by domestic economic fundamentals, policy credibility, and the structural characteristics of each country. Therefore, strengthening the mix of monetary, fiscal, and macroprudential policies, as well as deepening financial markets, are key to increasing macroeconomic resilience to global monetary shocks.
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