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The Transmission Mechanism in a Changing World

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  • Artis, Michael J
  • Galvão, Ana Beatriz C
  • Marcellino, Massimiliano

Abstract

This Paper aims at improving the understanding of the transmission of shocks across countries and how this transmission may have changed over time. By employing a model that allows for parameter changes across regimes, we show that transmission of shocks from the US to European countries may depend on the values of transition variables such as financial prices, exchange rates, international capital flows, trade links and monetary policy instruments. We also show that transmission mechanisms estimated with the proposed models have good performance in describing the 2001 downturn in some European countries as an effect of a US shock. More generally, the models have a good forecasting performance over short horizons.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4014.

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Date of creation: Aug 2003
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Handle: RePEc:cpr:ceprdp:4014

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Keywords: cycles; europe; impulse response; non-linear VAR; shocks; transmission mechanism;

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References

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  1. M. Hashem Pesaran & Til Schuermann & Scott M. Weiner, 2002. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Center for Financial Institutions Working Papers 01-38, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  12. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  16. Camacho, Maximo & Pérez Quirós, Gabriel, 2000. "This is what the US leading indicators lead," Working Paper Series 0027, European Central Bank.
  17. Carrasco, Marine, 2002. "Misspecified Structural Change, Threshold, and Markov-switching models," Journal of Econometrics, Elsevier, vol. 109(2), pages 239-273, August.
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