Money-income causality revisited in EGARCH: Spillovers of monetary policy to Asia from the US

This paper investigates how money-income causality in the Asia is influenced by US interest rates and the money supply and which policy variable has a stronger impact on Asia. Six Asian economies are examined (Pakistan, India, Malaysia, Indonesia, Philippines and Korea) using an EGARCH model over the period 1970:Ql-2002:Q4. The results indicate that spillover effects from US interest rates and the money supply unambiguously influence money-income causality for each of the economies examined. This suggests that Asian monetary authorities should monitor US monetary policies carefully and decide upon the domestic money supply by reference to an EGARCH model. Alternatively, the domestic money supply may be determined by a rule based on the US money supply.