International transmission and business-cycle effects of financial stress
Jonas Dovern () and
Björn van Roye
Journal of Financial Stability, 2014, vol. 13, issue C, 1-17
We analyze the international transmission of financial stress and its effects on global economic activity. Our analysis is based on country-specific monthly financial stress indices (FSIs) over the sample period 1970–2012 for 20 major economies. First, we show that co-movement between the FSIs increases during major financial crises and towards the end of our sample period. Second, we show that the risk of large financial stress spillovers to an economy increases with its level of economic openness. Third, we show – using a global VAR (GVAR) model – that (i) a financial stress shock in the US quickly transmits internationally, (ii) financial stress shocks have lagged but persistent negative effects on economic activity, and (iii) that a negative US demand shock induces only limited financial stress on a global scale. Finally, we show that spillovers of financial stress run mainly from advanced to emerging economies and not in the opposite direction.
Keywords: Financial stress; Financial crises; Macro-financial linkages; Financial spillovers; Global VAR (search for similar items in EconPapers)
JEL-codes: E32 E52 F36 F37 F41 F44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:13:y:2014:i:c:p:1-17
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