The Impacts of Emerging Asia on Global Financial Markets

The purpose of this article is to explore to what extent spillovers from Asian financial market shocks have risen during the past two decades. In the first part, we examine spillover effects in stock markets. Estimating the Global Vector Autoregressive (GVAR) model, we find that spillover effects from emerging Asia became large in the post Global Financial Crisis (GFC) period. However, we also find that most of the spillover effects were from shocks in the manufacturing sector rather than from those in the financial sector. This implies that the spillover effects increased in the post GFC period because of increased manufacturing sector's shocks in emerging Asia. In the second part, we examine spillover effects across different foreign exchange rates. As in the stock markets, spillover effects from emerging Asia became large in the foreign exchange markets in the post GFC period. In particular, our high frequency data analysis suggests that an exchange rate policy change by the the People's Bank of China (PBC) had positive spillover effects on most of the advanced currencies in the post GFC period. The empirical results imply that the impact of Chinese shocks has been rising in the global financial markets.