The Impact of Interest Rate Spillover on Output Gap: A Dynamic Spatial Durbin Model

Abstract

The recent multidimensional crisis has harmed the global economy because countries are currently integrated. In this study, we examine the spillover effect of the United States (US) interest rate on the output gap of ASEAN+3 countries using the dynamic spatial Durbin model from 2010 to 2020. After controlling for various institutional variables, this analysis further examines the effect of the exchange rate and the COVID-19 pandemic on the output gap. This model captures the spatial interactions and short- and long-term effects of interest rate monetary policies. The findings indicate a negative spillover effect of the US central bank interest rate on ASEAN+3 countries’ output gap. The result had significant direct and indirect short-term effects. Additionally, exchange rates negatively affect the output gap. The output gap decreased because of the COVID-19 pandemic. This study is expected to be useful for monetary authorities in developing the best monetary policy for economic recovery.

Role of Indonesia’s G20 Presidency and Exchange Rate on LQ45 stock price: Dynamic Panel Model Approach

“…ERs are crucial to finance, international trade, and investment. ER is the value of a country's currency relative to that of another country (Fahlevi, 2019;Megaravalli & Sampagnaro, 2018;Singhal et al, 2019;Wuri et al, 2024). ERs affect the prices of goods and services when traded across borders and determine the relative value of various currencies.…”

“…Researchers are pursuing discussions on the impact of ERs on LQ45. Previous studies find that favorable economic conditions result in foreign currency appreciation (Bahmani-oskooee & Saha, 2016;Dahir et al, 2018;Megaravalli & Sampagnaro, 2018;Sheikh et al, 2020;Tian & Ma, 2009;Wuri et al, 2024). Exchange rate stability and stock price movements can also influence domestic and international market sentiment.…”