Macroeconomic transmission of eurozone shocks to emerging economies
AbstractThis 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 InfoPaper provided by CEPII research center in its series Working Papers with number 2012-12.
Date of creation: Jun 2012
Date of revision:
Eurozone recession; transmission of shocks; Bayesian vector autoregression; emerging economies; growth spillovers;
Find related papers by JEL classification:
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-EEC-2012-06-25 (European Economics)
- NEP-FDG-2012-06-25 (Financial Development & Growth)
- NEP-OPM-2012-06-25 (Open Economy Macroeconomic)
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