Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/44960 
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper Series 1 No. 2011,05
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
1971-2009. Financial shocks are defined as unexpected changes of a financial conditions index (FCI), recently developed by Hatzius et al. (2010), for the US. We use a time-varying factor-augmented VAR to model the FCI jointly with a large set of macroeconomic, financial and trade variables for nine major advanced countries. The main findings are as follows. First, positive US financial shocks have a considerable positive impact on growth in the nine countries, and vice versa for negative shocks. Second, the transmission to GDP growth in European countries has increased gradually since the 1980s, consistent with financial globalization. A more marked increase is detected in the early 1980s in the US itself, consistent with changes in the conduct of monetary policy. Third, the size of US financial shocks varies strongly over time, with the `global financial crisis shock' being very large by historical standards and explaining 30 percent of the variation in GDP growth on average over all countries in 2008-2009, compared to a little less than 10 percent over the 1971-2007 period. Finally, large collapses in house prices, exports and TFP are the main drivers of the strong worldwide propagation of US financial shocks during the crisis.
Subjects: 
international business cycles
international transmission channels
financial markets
globalization
financial conditions index
global financial crisis
timevarying FAVAR
JEL: 
F1
F4
F15
C3
C5
ISBN: 
978-3-86558-695-7
Document Type: 
Working Paper

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