Global financial stress and financial transmission channels

Sandra Eickmeier, Norbert Metiu, Josefine Quast and Sabine Tanneberger

Chapter 6 in Handbook of Financial Integration, 2024, pp 134-171 from Edward Elgar Publishing

Abstract: This chapter analyzes the international transmission of a global financial stress shock. The authors use a large-scale factor-augmented vector autoregressive model, estimated over quarterly macroeconomic and financial data for 40 countries. They identify the shock using a combination of contemporaneous zero and sign restrictions on impulse responses and narrative restrictions. Emerging economies suffer larger real output losses than advanced economies from a global financial stress shock. Advanced economies benefit from safe-haven capital flows and are better able to stabilize their economies through more active monetary and fiscal policy. The shock gives rise to co- movement in financial asset prices and quantities across countries. Hence, financial channels are crucial in the transmission mechanism.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2024
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