DYNAMIC IMPACT OF EXTERNAL SHOCKS ON MACROECONOMIC FUNDAMENTALS OF SELECTED SOUTH ASIAN COUNTRIES

Abstract

This research investigates the relative importance of a set of exogenous shocks in deriving the fluctuations in macroeconomic fundamentals of selected South Asian countries. We have employed the panel structural VAR model to cater to the idiosyncratic and contagion impact of shocks, for 1999Q1-2018Q2, relying on a set of exogenous shocks (Oil Price shock, Trade shock, MSCI world shock, and structural shock (GFC). The variance decomposition forecasting error and impulse response function confirm pronounce impact of external shocks on macroeconomic fundamentals, particularly in the pre-global financial crises GFC period. Moreover, the oil price shock and trade shock have a significant effect on macroeconomic fundamentals for South Asian countries with more asymmetric response vis-à-vis to financial shocks. Variance decompositions and impulse-response functions display that South Asian countries appear more sensitive to the trade channel rather than to the financial channel.