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Macroeconomic transmission of eurozone shocks to emerging economies

Bilge Erten ()

Working Papers from CEPII research center

Abstract: This paper analyzes the robustness of emerging economies growth performance to a number of external demand shocks using a Bayesian vector autoregressive (BVAR) model with informative priors on the steady state. Using quarterly data from 1993 to 2011 for global financial conditions and external demand variables, it examines the magnitude of the shocks from a deepening Eurozone recession on China, emerging Asia, and emerging Latin America, and the factors that influence the transmission of these shocks. It finds that more than fifty percent of the variation in real GDP growth of Latin American emerging economies is explained by external factors, while it is slightly less than fifty percent for emerging Asia and China. Conditional forecasts of different scenarios indicate that a deepening of the Eurozone recession would create a severe and persistent contraction for emerging economies, depending on the response of the U.S. growth to this shock. Finally, forecasts suggest that a sharp slowdown in China’s growth would have a significant negative impact on emerging economies’ growth, and that the Latin American countries would be more severely hit than the Asian ones.

Keywords: Eurozone recession; transmission of shocks; Bayesian vector autoregression; emerging economies; growth spillovers (search for similar items in EconPapers)
JEL-codes: F43 F44 F47 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-opm
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Journal Article: Macroeconomic Transmission of Eurozone Shocks to Emerging Economies (2012) Downloads
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