The Impact of the US Economy on the Asia-Pacific Region : Does It Matter?

We first confirm the interdependence of the United States and the Asia-Pacific region, and explore the real linkage through trade and investment, and the financial linkage through stock markets. These linkages are strengthened by the recent information technology (IT) revolution. The pairwise and vector autoregression (VAR) model are used to test the Granger causality of real linkage in terms of GDP and the financial linkage in terms of the daily stock price indices among these countries. Impulse response functions and variance decomposition from VAR are illustrated. Our results show that there is no significant unidirectional causality from the US GDP to Japan, Taiwan, Korea, and China. But the slump in the US stock price indices will cause the stock market recession in Japan, Korea, and Taiwan, but not China