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Theoretical Channels of International,Transmission During the Subprime Crisis to OCDE Countries : A FAVAR Model Under Bayesian Framework

Author

Listed:
  • Olfa Kaabia
  • Ilyes Abid

Abstract

This paper studies whether and how U.S. shocks are transmitted to other OECD economies in the case of the subprime crisis. Using a large data set of financial and macroeconomic variables in 17 OECD countries from 1980:Q1 to 2006:Q2, we characterize the transmission channels by the interpretable factors and make a structural analysis using FAVAR models under a Bayesian approach. Our main findings suggest that differences exist in the contagion effects. This implies that no generalizations can be made for OECD countries even of equal economic size and in the same geographic region. Our results show that a large portion of the variance of domestic economic variables is explained by global factors and that the interest rate shock appears to play an important role in the spillover mechanism from the U.S to the OECD countries.

Suggested Citation

  • Olfa Kaabia & Ilyes Abid, 2012. "Theoretical Channels of International,Transmission During the Subprime Crisis to OCDE Countries : A FAVAR Model Under Bayesian Framework," EconomiX Working Papers 2012-40, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2012-40
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    File URL: http://economix.fr/pdf/dt/2012/WP_EcoX_2012-40.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kaabia, Olfa & Abid, Ilyes & Guesmi, Khaled, 2013. "Does Bayesian shrinkage help to better reflect what happened during the subprime crisis?," Economic Modelling, Elsevier, vol. 31(C), pages 423-432.

    More about this item

    Keywords

    Transmission channels; Contagion; Bayesian estimation and FAVAR models;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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

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