The transmission of shocks between Europe, Japan and the United States

Abstract

This paper identifies the types of shocks that affect the economies of Europe, the USA and Japan, and the transmission paths of those shocks between these countries. The identification of shocks is based on the Cointegrated VAR methodology. The categorization and interpretation of shocks are based on synthesis of theoretical studies on international business cycles and international policy coordination. We show that the Cointegrated VAR model is a valid choice and that it demonstrates good fit with the data-generating processes of the time series examined. We find that country-specific US permanent shocks transmit to Europe and Japan and, when positive, have a locomotive effect. The USA is not affected by the country-specific permanent shocks of Europe or Japan. The permanent shocks originating in Europe or Japan do not have a significant effect on the opposite country's growth rates. The model identifies one common symmetric transitory shock affecting all three countries. Copyright © 2009 John Wiley & Sons, Ltd.

Modelling Large Open Economies With International Linkages: The Usa and Euro Area

“…With US output assumed to contemporaneously cause euro area output, a permanent US output shock leads to an increase in euro area output in graph (a) of panel I, while the US response to a corresponding euro area shock is insignificantly negative. These results are in line with those of Papanyan (). While Schneider and Fenz () find an insignificant cross‐economy effect of a euro area demand shock on the USA, in their case a US demand shock also has insignificant effects on euro area GDP.…”

“…As discussed further in the , there is evidence for a single cointegrating vector amongst the I ( 1 ) variables, and estimation by ordinary least squares yields where ecm t is the estimated disequilibrium at time t . Note that equation implies differential trend rates of output growth in the two economies, a feature also found by Papanyan () and indicated by the data graph in the .…”

“…While theoretical international models often assume a common cross‐economy technology shock, this does not seem to be empirically supported by the consistent deviations between growth rates experienced by different countries. Indeed, Uhlig () finds differences in technological innovations to be the primary explanator for different monetary policy outcomes in the euro area and the USA and, in a cointegration analysis of output linkages for the USA, Europe and Japan, Papanyan () finds two permanent shocks, one of which originates in the USA. Further, the assumption of distinct technology shocks is more palatable than considering exchange rate shocks as permanent; see also Dungey and Pagan ().…”

“…Therefore, contemporaneous causality assumptions are required for the output and inflation blocks of B 0 in equation , leading to four possible combinations. In the case of output there is empirical evidence that the USA is less affected by external factors than euro area countries (see, for example, Perez et al ., ; Kose et al ., ; Papanyan, ). Although Bayoumi and Swiston () suggest that a strong stand should not be taken in relation to the source of output shocks in this international context, our experiments (not shown) imply that this assumption has relatively little qualitative effect on results .…”

US Metropolitan Area Resilience: Insights from dynamic spatial panel estimation

“…The significant advantages of this estimator are that it allows us to incorporate a large number of regions in our analysis. In comparison, vector autoregressive (VAR) and vector error correction (VEC) modelling as applied by Papanyan (2010), Fingleton et al (2012) and Doran and Fingleton (2014) becomes highly impractical once one extends beyond about a dozen regions and would certainly be prohibitive given 377 MSAs.…”