Spillover Effects of Unconventional Monetary Policy on Asia and the Pacific

The chapter assesses the evolution of spillover effects of unconventional monetary policies (UMPs) and their macroeconomic impact on Asia and the Pacific region. It develops a Panel Vector Auto Regression model for a period covering data from first quarter 2000 until first quarter 2015. It finds that Asia and the Pacific region has responded to the advanced economies’ actions with accommodative monetary policy. Such lower interest rates were coupled with currency appreciation, asset price inflation, and strong movements in capital flows. If prior to the Global Financial Crisis (GFC), the ‘global saving glut’ hypothesis (i.e. Asian savings flight to the US) was one of the major effects resulting in booming US house prices, it is clear that a reversal effect has dominated the economy after the GFC: funds flight to Asia and the Pacific region putting pressure on asset prices, leading to financial vulnerability.