By measuring time-varying financial spillovers of five asset classes, we analyze the propagation of shocks originating in the United States and Japan into countries of emerging Asia (EA). We compare the scale and nature of spillovers during the 2008–09 global financial crisis (GFC), the 2013 “taper tantrum” (TT), and the ongoing COVID-19 pandemic (C-19). Based on the direct and indirect spillovers, the intensity of the spillover effect was largest during C-19 due to its global and multidimensional nature, and the United States was a net transmitter of spillovers particularly in bonds and equity markets. TT was an important episode for EA as it marked the beginning of the region's financial volatility and increased spillovers especially in bonds market. The impulse responses reveal that most spillovers were transmitted rapidly, in a matter of days. In times of recession whereby financial stability is in danger of being affected by spillovers, a concrete financial cooperation remains absent in EA although formal institutions designed to deal with the contagion have been put in place.

Although signs have emerged that some of the forces that caused the 1997–98 Asian financial crisis have begun to diminish and progress has been made in macroeconomic affairs, 10 years after the meltdown Indonesia's recovery is still among the slowest in Asian crisis countries. During the last few years, the relatively rapid growth of the financial sector (inadequately restructured) reflects the presence of excess liquidity and the sector's vulnerability. The slow growth of investment explains the economy-wide effects on the real sector and the stagnancy or deterioration of some social indicators. This paper focuses on two issues related to the slow recovery: the financial structure of lenders and borrowers that dampened credit, and the dismal performance of regional growth following the 2001 decentralization policy. There is some evidence indicating that agency costs have slowed credit and investment growth (credit channel), and that institutional constraints produced a lack of growth incentives among local governments. Efforts to raise the sub-national welfare post-decentralization have also been constrained by national policies such as a tight budget and the relatively conservative monetary policy despite the fact that they are not too effective at controlling inflation. The decomposition analysis also shows that an aggregate demand expansion would have been effective to stimulate growth.

Many models of the Indonesian economy cannot generate the large collapses in output and exchange rate experienced in 1997–98. The model in this paper was able to replicate the actual events by adding several new links. One new link is between the depreciation of the exchange rate and the deterioration of the balance sheets of firms, which are in turn linked to decline in investment. Another new link is between decline in output and decline in business confidence, leading to possible increased capital outflow and exchange rate collapse. The IMF's high interest rate policy did not succeed in strengthening the rupiah because it inflicted such severe damage on the net worth of Indonesian firms that it caused capital flight to accelerate, turning what was originally just a financial crisis into a major recession. Two alternative counterfactual policy packages are examined: (1) a lower interest rate policy and (2) a lower interest rate policy combined with a partial write-down of the external debt. The model indicates that the country's macroeconomic conditions would have fared better if the prolonged high interest rate policy had been avoided. The results suggest that early actions should have been undertaken to address the mounting private foreign debts. The delayed handling of private debts had prevented other policies from working effectively. The two counterfactual policies also would have resulted in a more favorable outcome for income distribution and poverty incidence. The model revealed a close correlation between worsening (improving) income distribution and increasing (declining) interest rates.