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The Changing International Transmission of Financial Shocks: Evidence from a Classical Time‐Varying FAVAR

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  • ANGELA ABBATE
  • SANDRA EICKMEIER
  • WOLFGANG LEMKE
  • MASSIMILIANO MARCELLINO

Abstract

We study the changing international transmission of financial shocks over the period 1971–2012. Global financial shocks are measured as unexpected changes of a U.S. financial conditions index (FCI), developed by Hatzius et al. (2010). We model the FCI jointly with a large international data set through a time‐varying parameter factor‐augmented VAR and find that financial shocks have a considerable impact on growth in the nine countries considered. Moreover, financial shocks during the global financial crisis are found to be large by historical standards. They explain approximately 20% of GDP growth variation on average over 2008–9, compared to an average of 5% prior to the crisis.

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  • Angela Abbate & Sandra Eickmeier & Wolfgang Lemke & Massimiliano Marcellino, 2016. "The Changing International Transmission of Financial Shocks: Evidence from a Classical Time‐Varying FAVAR," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(4), pages 573-601, June.
    • Handle: RePEc:wly:jmoncb:v:48:y:2016:i:4:p:573-601
    DOI: 10.1111/jmcb.12311
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F1 - International Economics - - Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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