Investigating the Effect of U.S. Monetary Policy Normalization on the ASEAN-4 Economies

Author Name Willem THORBECKE (Senior Fellow, RIETI)
Creation Date/NO. May 2016 16-E-070
Research Project East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances
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U.S. monetary policy normalization is triggering capital outflows in the Association of South East Asian Nations (ASEAN). Using an event study, this paper reports that capital-intensive firms, the financial sector, and small firms in ASEAN are exposed to these outflows. Capital outflows also cause exchange rate depreciations that improve the price competitiveness of exports. To gauge this effect, this paper estimates price and income elasticities for ASEAN exports. The results indicate that a 10% exchange rate depreciation will increase ASEAN labor-intensive exports by 8%. ASEAN firms should use the tailwind provided by weaker exchange rates to increase exports.