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Macroeconomic Model Spillovers and Their Discontents


  • Tamim Bayoumi
  • Francis Vitek


The Great Recession underlined that policies in some countries can have profound spillovers elsewhere. Sadly, the solution of simulating large macroeconomic models to measure these spillovers has been found wanting. Typical models generate lower international correlations of output and financial asset prices than are seen in even pre-crisis data. Imposing higher financial market correlations creates more reasonable cross-country spillovers, and is likely to become the norm in policy modeling despite weak theoretical underpinnings, as is already true of sticky wages. We propose using event studies to calibrate market reactions to particular policy announcements, and report results for U.S. monetary and fiscal policy announcements in 2009 and 2010 that are plausible and event-specific.

Suggested Citation

  • Tamim Bayoumi & Francis Vitek, 2013. "Macroeconomic Model Spillovers and Their Discontents," IMF Working Papers 13/4, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/4

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    References listed on IDEAS

    1. Markus K. Brunnermeier & Thomas M. Eisenbach & Yuliy Sannikov, 2012. "Macroeconomics with Financial Frictions: A Survey," Levine's Working Paper Archive 786969000000000384, David K. Levine.
    2. Francis Vitek, 2012. "Policy Analysis and Forecasting in the World Economy; A Panel Unobserved Components Approach," IMF Working Papers 12/149, International Monetary Fund.
    3. James H. Stock & Mark W. Watson, 2005. "Understanding Changes In International Business Cycle Dynamics," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 968-1006, September.
    4. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
    5. Francis Vitek, 2010. "Monetary Policy Analysis and Forecasting in the Group of Twenty; A Panel Unobserved Components Approach," IMF Working Papers 10/152, International Monetary Fund.
    6. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    7. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2011. "Vertical Linkages and the Collapse of Global Trade," American Economic Review, American Economic Association, vol. 101(3), pages 308-312, May.
    8. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
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    Cited by:

    1. Tamim Bayoumi, 2014. "After the Fall; Lessons for Policy Cooperation from the Global Crisis," IMF Working Papers 14/97, International Monetary Fund.
    2. Zuzana Brixiova & Qingwei Meng & Mthuli Ncube, 2015. "Can Intra-Regional Trade Act as a Global Shock Absorber in Africa?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 16(3), pages 141-162, July.
    3. Tamim Bayoumi & Giovanni Dell'Ariccia & Karl F Habermeier & Tommaso Mancini Griffoli & Fabian Valencia, 2014. "Monetary Policy in the New Normal," IMF Staff Discussion Notes 14/3, International Monetary Fund.
    4. Mthuli Ncube & Zuzana Brixiova & Meng Qingwei, 2014. "Working Paper 198 - Can Intra-Regional Trade Act as a Global Shock Absorber in Africa?," Working Paper Series 2104, African Development Bank.
    5. Vetlov, Igor & Attinasi, Maria Grazia & Lalik, Magdalena, 2017. "Fiscal spillovers in the euro area a model-based analysis," Working Paper Series 2040, European Central Bank.
    6. Yoshiyuki Fukuda & Yuki Kimura & Nao Sudo & Hiroshi Ugai, 2013. "Cross-country Transmission Effect of the U.S. Monetary Shock under Global Integration," Bank of Japan Working Paper Series 13-E-16, Bank of Japan.
    7. Daniel Zerfu Gurara & Mthuli Ncube, 2013. "Working Paper 183 - Global Economic Spillovers to Africa- A GVAR Approach," Working Paper Series 981, African Development Bank.
    8. Tamim Bayoumi, 2015. "The Dog That Didn’t Bark; The Strange Case of Domestic Policy Cooperation in the “New Normal”," IMF Working Papers 15/156, International Monetary Fund.
    9. Tamim Bayoumi, 2016. "Dynamic Stochastic General Equilibrium Models and Their Discontents," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 403-411, September.


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