Spillover effects in international business cycles

Maximo Camacho, Gabriel Perez-Quiros and Matías Pacce
Authors registered in the RePEc Author Service: Gabriel Perez Quiros

No 2484, Working Paper Series from European Central Bank

Abstract: To analyze the international transmission of business cycle fluctuations, we propose a new multilevel dynamic factor model with a block structure that (i) does not restrict the factors to being orthogonal and (ii) mixes data sampled at quarterly and monthly frequencies. By means of Monte Carlo simulations, we show the high performance of the model in computing inferences of the unobserved factors, accounting for the spillover effects, and estimating the model's parameters. We apply our proposal to data from the G7 economies by analyzing the responses of national factors to shocks in foreign factors and by quantifying the changes in national GDP expectations in response to unexpected positive changes in foreign GDPs. Although the share of the world factor as a source of the international transmission of fluctuations is still significant, this is partially absorbed by the spillover transmissions. In addition, we document a pro-cyclical channel of international transmission of output growth expectations, with the US and UK being the countries that generate the greatest spillovers and Germany and Japan being the countries that generate the smallest spillovers. Therefore, policymakers should closely monitor the evolution of foreign business cycle expectations. JEL Classification: E32, C22, F42, F41

Keywords: Bayesian estimation; international business cycles; mixed frequency data; spillover effects (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: Spillover Effects in International Business Cycles (2021)
Working Paper: Spillover effects in international business cycles (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202484

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