Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109556
Authors: 
Park, Cyn-Young
Majuca, Ruperto
Yap, Josef
Year of Publication: 
2010
Series/Report no.: 
ADB Working Paper Series on Regional Economic Integration 45
Abstract: 
Monitoring the behavior of potential output helps policymakers implement appropriate policies in response to an economic crisis. In the short-run, estimates of the output gap can guide the timing of the implementation and withdrawal of stimulus measures. In the medium- to long-term, these estimates can also provide the basis for gauging productive potential and, hence, guide policies to support sustainable, non-inflationary output growth. In this paper, we investigate the post-crisis behavior of potential output in emerging East Asian economies by employing the Markov-switching model to account for structural breaks. Results show that after the 1997/98 Asian financial crisis, potential output in Hong Kong, China; the Republic of Korea (Korea); Singapore; and Malaysia reverted to levels consistent with trends prior to the crisis. While there were permanent drops in potential output for both Thailand and Indonesia, growth rates returned to pre-crisis trends. The People’s Republic of China (PRC); Taipei,China; and the Philippines are special cases as explained in the report. Econometric estimates of a simple growth model show that the differences among the patterns of post-crisis recovery can be attributed to the investment-to-gross-domestic-product (GDP) ratio; macroeconomic policies; exchange rate behavior; and productivity, which is proxied by the level of technological activity. These results can be used to guide policy in the aftermath of the 2008 global financial crisis.
Subjects: 
Potential output
Markov-switching model
structural break
global crisis
East Asia
JEL: 
C30
E32
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/igo
Document Type: 
Working Paper

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