Nonlinear Impacts of International Business Cycles on the UK — a Bayesian Smooth Transition VAR

Deborah Gefang and Rodney Strachan

No 08/4, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Employing a Bayesian approach, we investigate the impact of international business cycles on the UK economy in the context of a smooth transition VAR. We find that British business cycle is asymmetrically influenced by the US, France and Germany. Overall, positive and negative shocks generating in the US or France affect the UK in the same directions of the shock. Yet, a shock emanating from Germany always exerts negative accumulative effects on the UK. More strikingly, a positive shock arising from Germany negatively affects UK output growth more than a negative shock from Germany of the same size. These results suggest that the appropriate UK economic policy depends upon the origin, size and direction of the external shocks.

Keywords: International business cycle; Bayesian; smooth transition vector autoregression model (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 E32 F42 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-bec, nep-eec, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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