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Title:The importance of global shocks for national policy makers: rising challenges for central banks PDF Logo
Authors:Belke, Ansgar
Rees, Andreas
Issue Date:2009
Series/Report no.:Ruhr economic papers 135
Abstract:We analyze the importance of global shocks for the global economy and national policy makers. More specifically, we investigate whether monetary policy has become less effective in the wake of financial globalization. We also examine whether there is increasing uncertainty for central banks due to globalization-driven changes in the national economic structure. A FAVAR framework is applied to derive structural shocks on a worldwide level and their impact on other global and also national variables. We estimate our macro model using quarterly data from Q1 1984 to Q4 2007 for the G7 countries plus the euro area. According to our results, global liquidity shocks are a driving force of the global economy and various national economies. However, some other shocks such as originating from house prices, GDP, technology and long-term interest rates play a role at the global level as well. These results prove to be robust across different specifications. Structural break tests indicate that global liquidity shocks have recently become more important as a determinant for house prices. In general, global variables have become more powerful over time in driving national variables.
Subjects:Global shocks
international business cycle
international policy coordination and transmission
factor augmented vector autoregressive (FAVAR) models
common factors
JEL:C22
E31
E32
F42
ISBN:978-3-86788-150-0
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des RWI
Ruhr Economic Papers, RWI

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