Regional Financial Spillovers Across Europe: A Global VAR Analysis

February 1, 2009

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Silvia Sgherri, and Alessandro Galesi. Regional Financial Spillovers Across Europe: A Global VAR Analysis, (USA: International Monetary Fund, 2009) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which-in the short run-financial shocks are transmitted internationally, while the contribution of other variables-like the cost and quantity of credit-becomes more important over longer horizons.

Subject: Banking, Credit, Econometric analysis, Financial institutions, Financial services, Foreign banks, Interbank rates, Money, Stocks, Vector autoregression

Keywords: Baltics, Coefficient estimate, Credit, Equity price, Estimation procedure, Europe, Foreign banks, Foreign variable, Global, Global VAR, Interbank rates, International Financial Spillovers, Macro-Financial Linkages, Price growth, Rate of growth, Stocks, Vector autoregression, Western Europe, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/023
Stock No:

WPIEA2009023
ISBN:

9781451871708
ISSN:

1018-5941

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