Kiel Working Papers, Kiel Institute for World Economics
No 1844:
International transmission of financial stress: evidence from a GVAR
Jonas Dovern and Björn van Roye
Abstract: 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
Keywords: Financial stress, Financial crises, Business Cycles, Dynamic Factor Model, Global VAR; (follow links to similar papers)
JEL-Codes: E32,; E52,; F36,; F37,; F41; (follow links to similar papers)
22 pages, June 2013
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