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Globalisation and monetary policy—A FAVAR analysis for the G7 and the eurozone

Ansgar Belke () and Andreas Rees

The North American Journal of Economics and Finance, 2014, vol. 29, issue C, 306-321

Abstract: We assess the significance of global shocks for the world economy and national central banks and governments. More specifically, we investigate whether monetary policy has become less effective in the wake of financial globalization. We also analyze whether there is increasing uncertainty for central banks due to globalization-driven changes in the national economic structure. A FAVAR framework is applied to identify structural shocks on a world level and their effect on other global and national variables. To estimate our macroeconomic model, we employ quarterly data from Q1 1984 to Q4 2007 for the G7 countries and the euro area. According to our results, global liquidity shocks significantly influence the world economy and also various national economies. But common shocks driven by real estate prices and GDP also turn out to be significant at a global scale. These results prove to be robust across different specifications.

Keywords: Global shocks; International business cycle; International transmission of macroeconomic policies; Factor augmented vector autoregressive (FAVAR) models; Common factors (search for similar items in EconPapers)
JEL-codes: C32 E31 E58 F42 (search for similar items in EconPapers)
Date: 2014
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