International Propagation of Shocks: A Dynamic Factor Model Using Survey Forecasts

Kajal Lahiri and Yongchen Zhao

No 2018-04, Working Papers from Towson University, Department of Economics

Abstract: This paper studies the pathways for the propagation of shocks across G7 and major Asia-Pacific countries using multi-horizon forecasts of real GDP growth from 1995 to 2017. We show that if the forecasts are efficient in the long run, results obtained using the forecasts are comparable to those obtained from the actual outturns. We measure global business cycle connectedness and study the impact of country- specific shocks as well as common international shocks using a panel factor structural VAR model. Our results suggest strong convergence of business cycles within the group of industrialized countries and the group of developing economies during non-recessionary periods. In particular, we find increased decoupling between the industrialized and developing economies after the 2008 recession. However, the direction of shock spillovers during recessions and other crisis periods are varied, depending on the nature and origin of the episode.

Keywords: GDP growth; business cycle connectedness; transmission of shocks; common international shocks; panel VAR model; Blue Chip Surveys. (search for similar items in EconPapers)
JEL-codes: C33 E32 F41 F42 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-09, Revised 2018-09
New Economics Papers: this item is included in nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://webapps.towson.edu/cbe/economics/workingpapers/2018-04.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: International propagation of shocks: A dynamic factor model using survey forecasts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:tow:wpaper:2018-04

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