ABSTRACT
Financial globalisation brings great benefits but also results in the vulnerability of the economy. This study aims to analyse whether there were contagion effects of the 2008 global financial crisis or mere interdependence between five countries of the Association of Southeast Asian Nations (ASEAN) and five developed countries through financial channels. The analysis used mixed-frequency data and included foreign exchange markets, stock markets, policy interest rates, and money markets in the period 1990–2016. Cross-market correlation, Dynamic Conditional Correlation (DCC), and vector auto regression (VAR) were also used in the analysis.
The DCC method indicated that there was no extreme increase in the DCC coefficient in the period after the crisis at variables of (1) exchange rates, (2) stock indices, and (3) money market rates; thus, the phenomenon of the relationship was interdependence and not contagion. However, the policy interest rate variable showed a significant increase in the DCC coefficient in the three periods of analysis (1990–1997, 1998–2007, 2008–2015). This indicates the presence of a strong relationship between the monetary policies of each country and those of the other countries and the increasing coordination of monetary policies among the five ASEAN countries in this study. Although the US monetary policy was used as a reference by the five ASEAN countries and the five developed countries still had a dominant influence on the ASEAN financial markets, the linkages through financial channels among the five ASEAN countries were relatively weak.
