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The international transmission channels of US supply and demand shocks: Evidence from a non-stationary dynamic factor model for the G7 countries

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  • Hanisch, Max
  • Kempa, Bernd

Abstract

We employ a multi-country non-stationary dynamic factor model to assess spillover effects and transmission channels of US supply and demand shocks on a variety of macroeconomic variables in individual non-US G7 countries. We find that trade, financial and confidence channels all play a significant role in the international transmission of US shocks. However, the results point to substantial heterogeneities of shock transmission across the individual G7 economies. In particular, we find negative transmission effects for Italy and Japan as the only two G7 countries not well integrated into global value chains. Moreover, the exchange rate responses of Germany, France and Italy turn out to be far less pronounced in comparison to the other G7 economies which we relate to their membership of the euro area and their coordinated monetary policies prior to the establishment of the euro. Whereas we document a close comovement of stock market dynamics across the G7 countries, we find credit and real estate markets to be less synchronized. We do not find the effects and transmission channels to be fundamentally affected by the post-2008 economic environment.

Suggested Citation

  • Hanisch, Max & Kempa, Bernd, 2017. "The international transmission channels of US supply and demand shocks: Evidence from a non-stationary dynamic factor model for the G7 countries," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 70-88.
  • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:70-88
    DOI: 10.1016/j.najef.2017.07.001
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    Cited by:

    1. Max Hanisch, 2017. "US Monetary Policy and the Euro Area," Discussion Papers of DIW Berlin 1701, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    International business cycles; International transmission channels; Dynamic factor models; Sign restrictions; Non-stationarity;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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