Time series analysis of economic integration in Asia

This dissertation consists of three research papers that study the regional economic integration in Asia. In particular, this dissertation tries to extend the existing literature by improving the methodologies. To overcome the methodological limitation of the standard VAR and dynamic factor models, three advance methods were applied. The first research paper, considers a global vector autoregressive (GVAR) model, which allows global inter-linkages between domestic and foreign variables. The first research paper analyzed whether recent regional economic growth and inflation dynamics in Asia were driven by a global (United States) shock or regional (Japanese and Chinese) shock. The second research paper, is uses a dynamic factor model (DFM) with time-varying parameters. The model allows the factor loadings of the model to change over time, so that the changes due to policies adopted by specific countries, or from structural changes, can be captured. This research paper analyzed whether the common dynamic properties of macroeconomic disturbances were influenced by global, regional, or country-specific factors. The last research paper deals with a DFM that is able to capture the spillover effects among the factors. The goal of this paper is to examine whether the co-movement results from common shocks or spillover effects. This is achieved by unrestricting the autoregressive coefficient of the factors. This research paper analyzed whether China and United States have spillover effects on the Asian countries. All results from the three research papers show a reduction in the importance of the world shock or world factor in influencing or explaining the macroeconomic movement of Asian economies. For the regional perspective, the three papers provide a distinct result. The first research paper shows that China’s output and inflation shock have a significant influence on Asian economies. However, the second and third research papers indicate the regional factor plays only a minor role in explaining fluctuations in Asian economic activity. Thus, the results may explain a noticeable importance of the Chinese economy on Asian countries, but not a significant share of regional factor on Asian economies. Moreover, the considerable co-movement of activity for Asian economies appears to be driven to a large extent by country-specific factors, indicate that Asian countries are more favorable for its own independent counter-cyclical monetary policy. Although these results show that Asian countries are not strongly integrate, to make a final conclusion, many more studies that are outside the scope of this study need to be done to examine the regional economic integration in Asia