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Theoretical Channels of International,Transmission During the Subprime Crisis to OCDE Countries: A FAVAR Model Under Bayesian Framework

Olfa Kaabia and Ilyes Abid

No 2012-40, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper studies whether and how U.S. shocks are transmitted to other OECD economies in the case of the subprime crisis. Using a large data set of financial and macroeconomic variables in 17 OECD countries from 1980:Q1 to 2006:Q2, we characterize the transmission channels by the interpretable factors and make a structural analysis using FAVAR models under a Bayesian approach. Our main findings suggest that differences exist in the contagion effects. This implies that no generalizations can be made for OECD countries even of equal economic size and in the same geographic region. Our results show that a large portion of the variance of domestic economic variables is explained by global factors and that the interest rate shock appears to play an important role in the spillover mechanism from the U.S to the OECD countries.

Keywords: Transmission channels; Contagion; Bayesian estimation and FAVAR models (search for similar items in EconPapers)
JEL-codes: E44 F20 G15 G01 C11 C32 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec and nep-mac
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