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Nonlinear Impacts of International Business Cycles on the UK — a Bayesian Smooth Transition VAR

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Author Info
Deborah Gefang ()
Rodney Strachan

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Abstract

Employing a Bayesian approach, we investigate the impact of international business cycles on the UK economy in the context of a smooth transition VAR. We find that British business cycle is asymmetrically influenced by the US, France and Germany. Overall, positive and negative shocks generating in the US or France affect the UK in the same directions of the shock. Yet, a shock emanating from Germany always exerts negative accumulative effects on the UK. More strikingly, a positive shock arising from Germany negatively affects UK output growth more than a negative shock from Germany of the same size. These results suggest that the appropriate UK economic policy depends upon the origin, size and direction of the external shocks.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-4.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/4.

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Date of creation: Jan 2008
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Handle: RePEc:lec:leecon:08/4

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Keywords: International business cycle; Bayesian; smooth transition vector autoregression model;

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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  2. Koop, Gary & Potter, Simon M, 1999. "Dynamic Asymmetries in U.S. Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 298-312, July.
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  3. Ni, Shawn & Sun, Dongchu, 2003. "Noninformative priors and frequentist risks of bayesian estimators of vector-autoregressive models," Journal of Econometrics, Elsevier, vol. 115(1), pages 159-197, July. [Downloadable!] (restricted)
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  7. Lubrano, M., 1999. "Smooth Transition GARCH Models: a Bayesian perspective," G.R.E.Q.A.M. 99a49, Universite Aix-Marseille III.
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  8. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November. [Downloadable!] (restricted)
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  10. Weise, Charles L, 1999. "The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 85-108, February.
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