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Macroeconomic transmission of eurozone shocks to emerging economies

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  • Bilge Erten

Abstract

This paper analyzes the robustness of emerging economies growth performance to a number of external demand shocks using a Bayesian vector autoregressive (BVAR) model with informative priors on the steady state. Using quarterly data from 1993 to 2011 for global financial conditions and external demand variables, it examines the magnitude of the shocks from a deepening Eurozone recession on China, emerging Asia, and emerging Latin America, and the factors that influence the transmission of these shocks. It finds that more than fifty percent of the variation in real GDP growth of Latin American emerging economies is explained by external factors, while it is slightly less than fifty percent for emerging Asia and China. Conditional forecasts of different scenarios indicate that a deepening of the Eurozone recession would create a severe and persistent contraction for emerging economies, depending on the response of the U.S. growth to this shock. Finally, forecasts suggest that a sharp slowdown in China’s growth would have a significant negative impact on emerging economies’ growth, and that the Latin American countries would be more severely hit than the Asian ones.

Suggested Citation

  • Bilge Erten, 2012. "Macroeconomic transmission of eurozone shocks to emerging economies," Working Papers 2012-12, CEPII research center.
  • Handle: RePEc:cii:cepidt:2012-12
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jawadi, Fredj & Mallick, Sushanta K. & Sousa, Ricardo M., 2016. "Fiscal and monetary policies in the BRICS: A panel VAR approach," Economic Modelling, Elsevier, vol. 58(C), pages 535-542.
    2. Gauvin, Ludovic & Rebillard, Cyril, 2013. "Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model," MPRA Paper 65457, University Library of Munich, Germany.
    3. Almansour, Aseel & Aslam, Aqib & Bluedorn, John & Duttagupta, Rupa, 2015. "How vulnerable are emerging markets to external shocks?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 460-483.
    4. Pär Stockhammar & Pär Österholm, 2016. "Effects of US policy uncertainty on Swedish GDP growth," Empirical Economics, Springer, pages 443-462.
    5. Sudip Ranjan Basu & Clovis Freire & Pisit Puapan & Vatcharin Sirimaneetham & Yusuke Tateno, "undated". "Euro zone debt crisis: Scenario analysis and implications for developing Asia-Pacific," MPDD Working Paper Series WP/12/03, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    6. Pär Stockhammar & Pär Österholm, 2016. "Effects of US policy uncertainty on Swedish GDP growth," Empirical Economics, Springer, pages 443-462.
    7. Pär Österholm & Pär Stockhammar, 2014. "The euro crisis and Swedish GDP growth - a study of spillovers," Applied Economics Letters, Taylor & Francis Journals, pages 1105-1110.
    8. Stockhammar, Pär & Österholm, Pär, 2016. "Do Inflation Expectations Granger Cause Inflation?," Working Papers 145, National Institute of Economic Research.
    9. Pär Stockhammar & Pär Österholm, 2017. "The Impact of US Uncertainty Shocks on Small Open Economies," Open Economies Review, Springer, pages 347-368.

    More about this item

    Keywords

    Eurozone recession; transmission of shocks; Bayesian vector autoregression; emerging economies; growth spillovers;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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