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Macroeconomic transmission of eurozone shocks to emerging economies

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  • Bilge Erten

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.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2012-12.

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Date of creation: Jun 2012
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Handle: RePEc:cii:cepidt:2012-12

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Keywords: Eurozone recession; transmission of shocks; Bayesian vector autoregression; emerging economies; growth spillovers;

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References

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  1. Banbura, Marta & Giannone, Domenico & Reichlin, Lucrezia, 2007. "Bayesian VARs with Large Panels," CEPR Discussion Papers 6326, C.E.P.R. Discussion Papers.
  2. Jeromin Zettelmeyer & Pär Österholm, 2007. "The Effect of External Conditionson Growth in Latin America," IMF Working Papers 07/176, International Monetary Fund.
  3. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
  4. Cimadomo, Jacopo & Bénassy-Quéré, Agnès, 2012. "Changing patterns of fiscal policy multipliers in Germany, the UK and the US," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 845-873.
  5. Matthieu Bussière & Alexander Chudik & Giulia Sestieri, 2012. "Modelling global trade flows: results from a GVAR model," Globalization and Monetary Policy Institute Working Paper 119, Federal Reserve Bank of Dallas.
  6. Carsten A Holz, 2005. "China’s Economic Growth 1978-2025: What We Know Today about China’s Economic Growth Tomorrow," Development and Comp Systems 0512002, EconWPA.
  7. Kose, M. Ayhan & Otrok, Christopher M. & Prasad, Eswar S., 2008. "Global business cycles: convergence or decoupling?," Discussion Paper Series 1: Economic Studies 2008,17, Deutsche Bundesbank, Research Centre.
  8. Gulasekaran Rajaguru & Tilak Abeysinghe, 2004. "Quarterly real GDP estimates for China and ASEAN4 with a forecast evaluation," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 431-447.
  9. International Monetary Fund, 2011. "Growth Spillover Dynamics From Crisis to Recovery," IMF Working Papers 11/218, International Monetary Fund.
  10. Silvia Sgherri & Alessandro Galesi, 2009. "Regional Financial Spillovers Across Europe," IMF Working Papers 09/23, International Monetary Fund.
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Cited by:
  1. Sudip Ranjan Basu & Clovis Freire & Pisit Puapan & Vatcharin Sirimaneetham & Yusuke Tateno, . "Euro zone debt crisis: Scenario analysis and implications for developing Asia-Pacific," MPDD Working Paper Series WP/12/03, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  2. Österholm, Pär & Stockhammar, Pär, 2014. "The Euro Crisis and Swedish GDP Growth — A Study of Spillovers," Working Paper 134, National Institute of Economic Research.

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