THE INTERNATIONAL TRANSMISSION OF VOLATILITY SHOCKS: AN EMPIRICAL ANALYSIS

Haroon Mumtaz and Konstantinos Theodoridis

Journal of the European Economic Association, 2015, vol. 13, issue 3, 512-533

Abstract: This paper proposes an empirical model which can be used to estimate the international transmission of volatility shocks. Using this model we estimate that a one standard deviation increase in the volatility of the shock to US real GDP leads to a decline in UK GDP of 1% relative to trend and a 0.7% increase in UK CPI relative to trend at the two-year horizon. Using a nonlinear open-economy DSGE model, we find that these empirical estimates are consistent with the response to a perturbation to the volatility of foreign “supply” type shocks, while an increase in the volatility of demand shocks has a negligible impact.

Date: 2015
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Working Paper: The international transmission of volatility shocks: an empirical analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jeurec:v:13:y:2015:i:3:p:512-533

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