Working Paper: CEPR ID: DP4014
Authors: Michael J. Artis; Ana Beatriz Galvo; Massimiliano Marcellino
Abstract: This Paper aims at improving the understanding of the transmission of shocks across countries and how this transmission may have changed over time. By employing a model that allows for parameter changes across regimes, we show that transmission of shocks from the US to European countries may depend on the values of transition variables such as financial prices, exchange rates, international capital flows, trade links and monetary policy instruments. We also show that transmission mechanisms estimated with the proposed models have good performance in describing the 2001 downturn in some European countries as an effect of a US shock. More generally, the models have a good forecasting performance over short horizons.
Keywords: Cycles; Europe; Impulse Response; Nonlinear VAR; Shocks; Transmission Mechanism
JEL Codes: C32; C53; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US shock (F59) | European economies (N14) |
| US shock (F59) | UK and Germany (N64) |
| US shock (F59) | France (F55) |
| Transition variables (financial prices, exchange rates) (F31) | transmission of US shocks to European economies (F44) |
| Transition variables (P20) | responses to shocks (E32) |