Working Paper No. 03-05

The Impact of the US Economy on the Asia-Pacific Region: Does It Matter
Frank S.T. Hsiao, Mei-chu W. Hsiao, and Akio Yamashita
April 2003

ABSTRACT

We first confirm the interdependence of the United States and the Asia-Pacific region, and explore the real linkage through trade and investment, and the financial linkage through stock markets. These linkages are strengthened by the recent IT revolution. The pairwise and VAR model are used to test the Granger causality of real linkage in terms of GDP and the financial linkage in terms of the daily stock price indexes among these countries. Impulse response functions and variance decomposition from VAR are illustrated. Our results show that there is no significant unidirectional causality from the US GDP to Japan, Taiwan, Korea, and China. But the slump in the US stock price indexes will Granger cause the stock market recession in Japan, Korea, and Taiwan, but not China.

JEL classification: F41; C32; E32; E44; O53
Keywords: US and Asia-Pacific; regional interdependence; IT revolution; VAR; causality

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