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Regional Financial Spillovers Across Europe

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  • Silvia Sgherri
  • Alessandro Galesi

Abstract

The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which-in the short run-financial shocks are transmitted internationally, while the contribution of other variables-like the cost and quantity of credit-becomes more important over longer horizons.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/23.

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Length: 33
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/23

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Related research

Keywords: Emerging markets; Financial systems; Regional shocks; Economic models; equity prices; statistics; error variance; cointegration; bootstrap; correlations; econometrics; gross domestic product; correlation; standard error; capital markets; estimation procedure; covariance; time series; financial statistics; bootstrap technique; linear trend; significance level; rate of change; confidence intervals; heteroscedasticity; asymptotic distribution; standard errors; domestic capital; structural analysis; subsidiaries; predictions; consumer price index; hypothesis testing; time series analysis; number of parameters; statistical significance; equation; central limit theorems; domestic capital markets; covariances; statistical analysis; linear model; linear models;

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