Saturday, October 23, 2010

ARTICLES - Deconstructing The International Business Cycle: Why Does A U.S. Sneeze Give The Rest Of The World A Cold?

Summary: The 2008 crisis underscored the interconnectedness of the international business cycle, with U.S. shocks leading to the largest global slowdown since the 1930s. We estimate spillover effects across major advanced country regions in a structural VAR (SVAR) using pre-crisis data. Our new method freely estimates the contemporaneous correlation matrix for underlying shocks in the VAR and (uniquely, to our knowledge) the associated uncertainty. Our results suggest that the international business cycle is largely driven by U.S. financial shocks with a significant impact from global shocks, mainly reflecting commodity prices. Other advanced economic regions play a much smaller and regional role in growth spillovers. Our findings are consistent with the emerging evidence on the current crisis.Source : http://www.imf.org/external/pubs/cat/longres.cfm?sk=24296.0 - Oct 1, 2010

1 comment:

  1. ARTICLES - US sneeze ... world cold ... - this is not about Islamic finance - but still I wanted to share - because this is what they intend to do : build models and tables and graphs - they do not intend to "change" anything really ...

    These results suggest that work on international spillovers should focus more on the role of financial markets as conduits for shocks, at least across the major advanced economy regions. The next challenge is thus to build realistic models of international macro-financial linkages that can create the size of spillovers apparently prevalent in the underlying data.

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