Assessing Global Economic Activity Linkages: An Empirical Exercise Based on Global Autoregressive Regression

Abstract

Economic performance increasingly relies on global economic environment due to the growing importance of trade and nancial links among countries. Literature on growth spillovers shows various gains obtained by this interaction. This work aims at analyzing the possible eects of a potential economic growth downturn in China, Germany and United States on the growth of other economies. We use global autoregressive regression approach to assess interdependence among countries. Two types of phenomena are simulated. The rst one is a one time shock that hit these economies. Our simulations use a large shock of-2.5 standard deviations, a gure very similar to what we saw back in the 2008 crises. The second experiment simulate the eect of a hypothetical downturn of the aforementioned economies. Our results suggest that the United States play the role of a global economy aecting countries across the globe whereas Germany and China play a regional role.