Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model

37 Pages Posted: 11 Jan 2011

See all articles by Alexander Chudik

Alexander Chudik

Federal Reserve Banks - Federal Reserve Bank of Dallas

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 3, 2011

Abstract

The paper analyses and compares the role that the tightening in liquidity conditions and the collapse in risk appetite played for the global transmission of the financial crisis. Dealing with identification and the large dimensionality of the empirical exercise with a Global VAR approach, the findings highlight the diversity of the transmission process. While liquidity shocks have had a more severe impact on advanced economies, it was mainly the decline in risk appetite that affected emerging market economies. The tightening of financial conditions was a key transmission channel for advanced economies, whereas for emerging markets it was mainly the real side of the economy that suffered. Moreover, there are some striking differences also within types of economies, with Europe being more adversely affected by the fall in risk appetite than other advanced economies.

Keywords: Liquidity, risk, financial crisis, global transmission, global VAR (GVAR), shocks, modelling, US, advanced economies, emerging market economies

JEL Classification: E44, F3, C5

Suggested Citation

Chudik, Alexander and Fratzscher, Marcel, Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model (January 3, 2011). ECB Working Paper No. 1285, Available at SSRN: https://ssrn.com/abstract=1734320 or http://dx.doi.org/10.2139/ssrn.1734320

Alexander Chudik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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