Cross-country information transmissions and the role of commodity markets: A multichannel Markov switching approach

This paper examines the interrelationships among 9 advanced economies using a novel multichannel approach to investigate, beyond the usual causal relationships, the time-varying dimension of the channels conveying causal relationships. The model is derived from the well-known Markov Switching setting and account for systems described by multiple variables. A Markov switching causality measure is adapted to account for information transmissions between distinct multivariate systems. Each country is described by 5 different fundamental variables reflecting its state. Our multichannel causality measure is then applied on these sets of time series to determine, over time, the main channels through which the information is transmitted between the different countries. In a second step, we investigate the relationships existing between these countries and the commodity markets and look at the possible use of the commodity markets as an indirect channel of information transmission between countries.