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International Propagation of Shocks: A Dynamic Factor Model Using Survey Forecasts

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  • Kajal Lahiri

    (Department of Economics, University at Albany, State University of New York)

  • Yongchen Zhao

    (Department of Economics, Towson University)

Abstract

This paper studies the pathways for the propagation of shocks across G7 and major Asia-Pacific countries using multi-horizon forecasts of real GDP growth from 1995 to 2017. We show that if the forecasts are efficient in the long run, results obtained using the forecasts are comparable to those obtained from the actual outturns. We measure global business cycle connectedness and study the impact of country- specific shocks as well as common international shocks using a panel factor structural VAR model. Our results suggest strong convergence of business cycles within the group of industrialized countries and the group of developing economies during non-recessionary periods. In particular, we find increased decoupling between the industrialized and developing economies after the 2008 recession. However, the direction of shock spillovers during recessions and other crisis periods are varied, depending on the nature and origin of the episode.

Suggested Citation

  • Kajal Lahiri & Yongchen Zhao, 2018. "International Propagation of Shocks: A Dynamic Factor Model Using Survey Forecasts," Working Papers 2018-04, Towson University, Department of Economics, revised Sep 2018.
  • Handle: RePEc:tow:wpaper:2018-04
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    2. Beckmann, Joscha, 2021. "Measurement and effects of euro/dollar exchange rate uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 773-790.

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    More about this item

    Keywords

    GDP growth; business cycle connectedness; transmission of shocks; common international shocks; panel VAR model; Blue Chip Surveys.;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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