Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323609 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of International Money and Finance [ISSN:] 1873-0639 [Volume:] 110 [Article No.:] 102287 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2021 [Pages:] 1-31
Publisher: 
Elsevier, Amsterdam
Abstract: 
Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.
Subjects: 
DSGE models
Volatility shocks
Markov switching
Open economy
Financial crisis
Nonlinearities
International transmission
International uncertainty
JEL: 
C61
E32
F21
F41
F44
E50
C11
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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