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Can External Shocks Explain the Asian Side of Global Imbalances? Lessons from a Structural VAR Model with Block Exogeneity


  • We are grateful to T. Doan, L. Hanzlik, A. Lopez-Villavicencio, L. Vanessa Smith and an anonymous referee for some highly profitable discussions and comments. We also thank the participants of the Cambridge Finance seminar and the Intra-European Imbalances, Global Imbalances, International Banking, and International Financial Stability conference. All remaining errors are ours.


During the 2000s, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in the USA and in Asia. This paper studies the impact of external shocks on East Asian countries in order to determine if these can account for the Asian side of global imbalances. To this end, we estimate a structural vector autoregression (VAR) model with block exogeneity using Bayesian inference. The three external shocks are an oil shock, a US monetary shock and a US financial shock. Our main findings are as follows: (i) external shocks account for the current account surplus in Korea, Malaysia, the Philippines, Singapore, and Thailand and, to a lesser extent, in Japan and Indonesia; (ii) the oil shock and the US monetary shock seem to have influenced current account balances through real and monetary channels, and the US financial shock through the financial channel.