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Transmission of business cycle shocks between the US and the euro area

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Author Info
Martin Schneider (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1010 Vienna,)
Gerhard Fenz (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1010 Vienna,)

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Abstract

We analyze the transmission of structural shocks between the US and the euro area within a two-country VAR framework. For that purpose, we simultaneously identify cost-push, demand and monetary policy shocks for both countries using sign restrictions. Our results show that domestic shocks explain the largest share of the forecast error variances for GDP, consumer prices and the interest rate in both countries in the short run, whilst spillovers from the other country and global factors gain importance in the medium run. The strength of the shock transmission between the two countries is quite symmetric. Our approach to the identification of structural shocks allows us to construct confidence bands that account both for estimation and identification uncertainty. We find impulse responses to domestic shocks to be significant while spillovers across countries are insignificant.

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Publisher Info
Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 145.

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Length: 29 pages
Date of creation: 21 Jul 2008
Date of revision:
Handle: RePEc:onb:oenbwp:145

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Postal: P.O. Box 61, A-1011 Vienna, Austria
Phone: +43/1/404 20 7205
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Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
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Related research
Keywords: VAR; shock transmission; sign restrictions; Metropolis-Hastings; confidence intervals; bootstrap.;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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References listed on IDEAS
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  2. Imbs, Jean, 2004. "The Real Effects of Financial Integration," CEPR Discussion Papers 4335, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38. [Downloadable!]
    Other versions:
  4. Benkwitz, Alexander & Lütkepohl, Helmut & Wolters, Jürgen, 1999. "Comparison of Bootstrap Confidence Intervals for Impulse Responses of German Monetary Systems," CEPR Discussion Papers 2208, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September. [Downloadable!]
  6. Matteo Ciccarelli & Benoît Mojon, 2005. "Global inflation," Working Paper Series 537, European Central Bank. [Downloadable!]
    Other versions:
  7. Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2004. "Similarities and convergence in G-7 cycles," Working Paper Series 312, European Central Bank. [Downloadable!]
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  11. Artis, Michael J & Galvão, Ana Beatriz C & Marcellino, Massimiliano, 2003. "The Transmission Mechanism in a Changing World," CEPR Discussion Papers 4014, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Paul Gaggl & Serguei Kaniovski & Klaus Prettner & Thomas Url, 2009. "The short and long-run interdependencies between the Eurozone and the USA," Empirica, Springer, vol. 36(2), pages 209-227, May. [Downloadable!] (restricted)
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    Other versions:
  14. Stéphane Dées & Isabel Vansteenkiste, 2007. "The transmission of US cyclical developments to the rest of the world," Working Paper Series 798, European Central Bank. [Downloadable!]
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  16. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2006. "Measuring the Sources of Cyclical Fluctuations in the G7 Economies," Economics & Statistics Discussion Papers esdp06028, University of Molise, Dept. SEGeS. [Downloadable!]
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  18. Gert Peersman, 2007. "The Relative Importance of Symmetric and Asymmetric Shocks: the Case of United Kingdom and Euro Area," Working Papers 136, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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