How do US credit supply shocks propagate internationally? A GVAR approach
Sandra Eickmeier () and
Tim Ng ()
European Economic Review, 2015, vol. 74, issue C, 128-145
We study how US credit supply shocks are transmitted to other economies. We use the recently developed GVAR approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983–2009. We experiment with inter-country links based on bilateral trade, portfolio investment, foreign direct investment and banking exposures. Capturing both bilateral trade and financial exposures in a GVAR fits the data better than using trade weights only. We use sign restrictions on the short-run impulse responses in the US model to identify the credit supply shocks. We find that negative credit supply shocks have strong negative effects on US and foreign GDP. Credit and equity markets in several countries respond clearly to the shocks. Exchange rate responses are consistent with a “flight to quality” to the US dollar. The credit supply shocks explain about a fifth of one-year-ahead output forecast error variance in the US and about a tenth in the euro area and the UK, but considerably less elsewhere.
Keywords: International business cycles; Credit supply shocks; Trade and financial integration; Global VAR; Sign restrictions (search for similar items in EconPapers)
JEL-codes: F41 F44 F36 F15 C3 (search for similar items in EconPapers)
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Working Paper: How Do Credit Supply Shocks Propagate Internationally? A GVAR approach (2011)
Working Paper: How do credit supply shocks propagate internationally? A GVAR approach (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:74:y:2015:i:c:p:128-145
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