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Regional Financial Spillovers Across Europe: A Global VAR Analysis
Author: Ms. Silvia Sgherri and Mr. Alessandro Galesi
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 023
Language:
English
Publication Date:
01 Feb 2009
DOI:
https://doi.org/10.5089/9781451871708.001
ISBN:
9781451871708
ISSN:
1018-5941
Pages:
33
Keywords:
WP; rate of growth; Global VAR; Macro-Financial Linkages; International Financial Spillovers; equity price; foreign variable; coefficient estimate; estimation procedure; price growth; Vector autoregression; Stocks; Interbank rates; Credit; Foreign banks; Western Europe; Baltics; Global; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which-in the short run-financial shocks are transmitted internationally, while the contribution of other variables-like the cost and quantity of credit-becomes more important over longer horizons.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund