International Journal of New Political Economy

International Journal of New Political Economy

The application of Markov-Switching Model to Examine the Relationship between Commodity Prices and ASEAN+3 countries’ financial instability

Articles in Press

Document Type : Original Article

Authors
Fahmideh Fattahi 1
Ali Rezazadeh 2
Farouq Mahmoudi-Razgeh 3
1 Ph.D in economics, Faculty of Economics and Management, Urmia University, Urmia, Iran.
2 Associate Professor, Department of Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran
3 PhD Candidate in Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran.
10.48308/jep.2026.240675.1234
Abstract
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.
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.
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.
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.
Keywords
Financial Stress
Global Commodity Prices
Nonlinear Causal Relationship
Markov-Switching Vector Error Correction Model (MS-VECM)
ASEAN+3 Countries
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International Journal of New Political Economy

Articles in Press, Accepted Manuscript
Available Online from 12 August 2026

  • Receive Date 21 July 2025
  • Revise Date 22 July 2026
  • Accept Date 12 August 2026
  • First Publish Date 12 August 2026
  • Publish Date 12 August 2026