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International transmission of financial stress: evidence from a GVAR

  • Jonas Dovern
  • Björn van Roye

We analyze the international transmission of financial stress and its effects on economic activity. We construct country specific monthly financial stress indexes (FSI) using dynamic factor models from 1970 until 2012 for 20 countries. We show that there is a strong co-movement of the FSI during financial crises and that the FSI of financially open countries are relatively more correlated to FSI in other countries. Subsequently, we investigate the international transmission of financial stress and its impact on economic activity in a Global VAR (GVAR) model. We show that i) financial stress is quickly transmitted internationally, ii) financial stress has a lagged but persistent negative effect on economic activity, and iii) that economic slowdowns induce only limited financial stress

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1844.

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Length: 22 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:kie:kieliw:1844
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