Global impact of loss of confidence in Asian emerging markets

Abstract

With the interest rate hike in the US and, more recently, in the UK, sudden stops in investments and capital reversals are apparent in the Asian emerging economies. A modelling approach is taken, using the G‐Cubed model, to simulate the potential global economic impacts, with a focus on Asia. The results demonstrate that myopic fiscal interventions in Asian emerging economies could result in short‐term stimulus, at the expense of long‐term growth. The stimulus in advanced economies too would be short‐lived, diverting the benefits to unintended fractions in the global economy. Advanced economies that minimally change their trade and investment patterns tend to avoid distortionary impacts of the crisis.