Shahid Beheshti University International Journal of New Political Economy 3060-6233 7 2 2026 08 01 The application of Markov-Switching Model to Examine the Relationship between Commodity Prices and ASEAN+3 countries’ financial instability 309 397 107335 10.48308/jep.2026.240675.1234 EN Fahmideh Fattahi Ph.D in economics, Faculty of Economics and Management, Urmia University, Urmia, Iran. 0009-0002-3228-5111 Ali Rezazadeh Associate Professor, Department of Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran 0000-0003-4165-1523 Farouq Mahmoudi-Razgeh PhD Candidate in Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran. Journal Article 2025 07 21 This study investigates the nonlinear and regime-dependent relationship and causal link between financial stress in ASEAN+3 economies and global commodity price fluctuations over the period 1995:1–2023:8, using the Markov-Switching Vector Error Correction Model MSIA(2)-VECM(7). The model allows the identification of distinct behaviors during economic expansions and recessions, with Regime 1 representing the boom phase and Regime 2 the recession phase.<br>Empirical findings reveal that during expansionary periods, there is a significant one-way causal relationship in which changes in commodity prices lead to financial stress, indicating limited external price influence. In contrast, during recessions, a significant two-way causal relationship is observed: increases in global commodity prices exacerbate financial stress, while financial stress shocks—through effects on production costs, investment, global demand, and exchange rates—in turn affect commodity prices. Lagged financial stress exhibits self-reinforcing and self-correcting mechanisms, reflecting the effectiveness of targeted policy interventions such as liquidity injections, monetary easing, and fiscal support in restoring stability.<br>Analysis of regime transition probabilities demonstrates that the boom regime is more stable and persistent than the recession regime, emphasizing the importance of regime-specific policy measures. Based on these results, policymakers should prioritize stabilizing interventions during downturns, continuously monitor commodity price trends, and enhance economic resilience through trade diversification and improved trade balances to mitigate the asymmetric impact of global commodity price shocks.<br>Overall, the study highlights the critical role of regime-dependent and causal-informed policy actions in maintaining financial stability and supporting sustainable economic growth in ASEAN+3 economies. It provides quantitative insights to help policymakers and financial institutions strengthen resilience to external market volatility. https://jep.sbu.ac.ir/article_107335_91a75a93bd463fd3bb29d5adfe17a757.pdf