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Theoretical Channels of International,Transmission During the Subprime Crisis to OCDE Countries : A FAVAR Model Under Bayesian Framework

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  • Olfa Kaabia
  • Ilyes Abid

Abstract

This paper studies whether and how U.S. shocks are transmitted to other OECD economies in the case of the subprime crisis. Using a large data set of financial and macroeconomic variables in 17 OECD countries from 1980:Q1 to 2006:Q2, we characterize the transmission channels by the interpretable factors and make a structural analysis using FAVAR models under a Bayesian approach. Our main findings suggest that differences exist in the contagion effects. This implies that no generalizations can be made for OECD countries even of equal economic size and in the same geographic region. Our results show that a large portion of the variance of domestic economic variables is explained by global factors and that the interest rate shock appears to play an important role in the spillover mechanism from the U.S to the OECD countries.

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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-40.

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Date of creation: 2012
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Handle: RePEc:drm:wpaper:2012-40

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Keywords: Transmission channels; Contagion; Bayesian estimation and FAVAR models;

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Cited by:
  1. Olfa Kaabia & Ilyes Abid & Khaled Guesmi, 2012. "Does Bayesian Shrinkage Help to Better Reflect What Happened during the Subprime Crisis?," EconomiX Working Papers 2012-46, University of Paris West - Nanterre la Défense, EconomiX.

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