The Relationship Between Macroprudential Policy and Financial Spillovers in Southeast Asia in the Last Two Decades

This study examines the relationship between macroprudential policy and financial spillovers in peripheral economies using the Bayesian panel vector autoregression model with data collected over the period 2001–2021 from six countries in Southeast Asia. Financial spillovers in this study are examined through the correlation of policy interest rates between peripheral economies and central economies at the world/regional level, which are the U.S. and Singapore. First, we find that the policy interest rate of each country has a significant correlation with that of the U.S. during the research period, but the correlation with that of Singapore is negligible. Second, more extensive implementation of macroprudential policies helps these countries regain their monetary independence from the U.S. Third, we find that the reserve ratio, the Global Financial Crisis and Covid-19 pandemic have also impacted the implementation of macroprudential policies and financial spillovers. Finally, we suggest some policy recommendations to stabilize the macroeconomy in peripheral economies.