EconPapers    
Economics at your fingertips  
 

Switching Volatility in a Nonlinear Open Economy

Jonathan Benchimol () and Sergey Ivashchenko

No 386, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how U.S. shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.

Keywords: DSGE; Volatility Shocks; Markov Switching; Open Economy; Financial Crisis; Nonlinearities (search for similar items in EconPapers)
JEL-codes: C61 E32 F21 F41 (search for similar items in EconPapers)
Pages: 51
Date: 2020-05-28
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.dallasfed.org/~/media/documents/institute/wpapers/2020/0386.pdf Full text (application/pdf)

Related works:
Journal Article: Switching volatility in a nonlinear open economy (2021) Downloads
Working Paper: Switching volatility in a nonlinear open economy (2021)
Working Paper: Switching Volatility in a Nonlinear Open Economy (2020) Downloads
Working Paper: Switching Volatility in a Nonlinear Open Economy (2020) Downloads
Working Paper: Switching Volatility in a Nonlinear Open Economy (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:88093

DOI: 10.24149/gwp386

Access Statistics for this paper

More papers in Globalization Institute Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-10-18
Handle: RePEc:fip:feddgw:88093