IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Modelling International Linkages for Large Open Economies: US and Euro Area

Listed author(s):
  • Mardi Dungey
  • Denise Osborn

Empirical modelling of the international linkages between the Euro Area and the US requires an open economy specification. This paper proposes and implements a structural VECM framework which imposes long run and short run cross-economy restrictions based on theoretically motivated restrictions and empirically supported dominance assumptions. The SVECM distinguishes between permanent and temporary shocks in a system where one cross-economy cointegrating relationship links output levels. In addition, the short run dynamics incorporate both contemporaneous interactions and feedbacks between the two economies. Importantly, greater empirical coherence is obtained by allowing for more direct inflationary effects between the two economies than considered in other recent analyses. Estimated using data from 1983Q1 to 2007Q4, the results demonstrate the cross-country impact of shocks. Although US shocks generally produce stronger effects, nevertheless some shocks originating in the Euro Area have significant effects on the US, particularly for inflation and interest rates.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-02/24_dungey_osborn_2009.pdf
Download Restriction: no

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2009-24.

as
in new window

Length: 32 pages
Date of creation: Sep 2009
Handle: RePEc:een:camaaa:2009-24
Contact details of provider: Postal:
Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601

Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://cama.crawford.anu.edu.au
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Raf Wouters & Frank Smets, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
  2. Mardi Dungey & Adrian Pagan, 2009. "Extending a SVAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 1-20, 03.
  3. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  4. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
  5. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Chapters, in: International Dimensions of Monetary Policy, pages 13-77 National Bureau of Economic Research, Inc.
  6. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
  7. Halunga, Andreea G. & Osborn, Denise R. & Sensier, Marianne, 2009. "Changes in the order of integration of US and UK inflation," Economics Letters, Elsevier, vol. 102(1), pages 30-32, January.
  8. Dungey, Mardi & Fry, Renée, 2009. "The identification of fiscal and monetary policy in a structural VAR," Economic Modelling, Elsevier, vol. 26(6), pages 1147-1160, November.
  9. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
  10. Levtchenkova, S & Pagan, A R & Robertson, J C, 1998. " Shocking Stories," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 507-532, December.
  11. Donald Robertson & Anthony Garratt & Stephen Wright, 2006. "Permanent vs transitory components and economic fundamentals," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 521-542.
  12. Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 281-305, March.
  13. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, 09.
  14. Anderson, Heather M. & Dungey, Mardi & Osborn, Denise R. & Vahid, Farshid, 2011. "Financial integration and the construction of historical financial data for the Euro Area," Economic Modelling, Elsevier, vol. 28(4), pages 1498-1509, July.
  15. Pedro PEREZ-VAZQUEZ & Denise OSBORN & Michael ARTIS, "undated". "The International Business Cycle in a Changing World:Volatility and the Propagation of Shocks," EcoMod2004 330600111, EcoMod.
  16. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, 03.
  17. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2009. "Identification of New Keynesian Phillips Curves from a Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1481-1502, October.
  18. Jung, Yongseung, 2007. "Can the new open economy macroeconomic model explain exchange rate fluctuations?," Journal of International Economics, Elsevier, vol. 72(2), pages 381-408, July.
  19. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
  20. Martin Fukac & Adrian Pagan, 2010. "Limited information estimation and evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 55-70.
  21. Pedro Perez & Denise Osborn & Michael Artis, 2006. "The International Business Cycle in a Changing World: Volatility and the Propagation of Shocks in the G-7," Open Economies Review, Springer, vol. 17(3), pages 255-279, July.
  22. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
  23. Jacobs, Jan P.A.M. & Wallis, Kenneth F., 2010. "Cointegration, long-run structural modelling and weak exogeneity: Two models of the UK economy," Journal of Econometrics, Elsevier, vol. 158(1), pages 108-116, September.
  24. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2005. "Understanding the Evolution of World Business Cycles," IMF Working Papers 05/211, International Monetary Fund.
  25. Michael Ehrmann & Marcel Fratzscher, 2005. "Equal Size, Equal Role? Interest Rate Interdependence Between the Euro Area and the United States," Economic Journal, Royal Economic Society, vol. 115(506), pages 928-948, October.
  26. Justiniano, Alejandro & Preston, Bruce, 2010. "Can structural small open-economy models account for the influence of foreign disturbances?," Journal of International Economics, Elsevier, vol. 81(1), pages 61-74, May.
  27. Galesi, Alessandro & Lombardi, Marco J., 2009. "External shocks and international inflation linkages: a global VAR analysis," Working Paper Series 1062, European Central Bank.
  28. Alon Binyamini & Assaf Razin, 2008. "Inflation-Output Tradeoff as Equilibrium Outcome of Globalization," NBER Working Papers 14379, National Bureau of Economic Research, Inc.
  29. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2007. "On the Fit of New Keynesian Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 123-143, April.
  30. Jared Laxton & Igor Ermolaev & Charles Freedman & Ondrej Kamenik & Michel Juillard & Douglas Laxton & Ioan Carabenciov & Dmitry Korshunov, 2008. "A Small Quarterly Multi-Country Projection Model," IMF Working Papers 08/279, International Monetary Fund.
  31. van Aarle, Bas & Garretsen, Harry & Gobbin, Niko, 2003. "Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 609-638.
  32. Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008. "Understanding the evolution of world business cycles," Journal of International Economics, Elsevier, vol. 75(1), pages 110-130, May.
  33. Marco Del Negro & Frank Schorfheide, 2004. "Priors from General Equilibrium Models for VARS," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 643-673, 05.
  34. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2009-24. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.