Regional Financial Spillovers across Europe: A Global VAR Analysis

33 Pages Posted: 11 Mar 2009

See all articles by Silvia Sgherri

Silvia Sgherri

International Monetary Fund (IMF)

Alessandro Galesi


Date Written: February 2009


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.

Keywords: Spillovers, Europe, Emerging markets, Financial systems, Economic integration, Regional shocks, Capital markets, Cross country analysis, Economic models

Suggested Citation

Sgherri, Silvia and Galesi, Alessandro, Regional Financial Spillovers across Europe: A Global VAR Analysis (February 2009). IMF Working Paper No. 09/23, Available at SSRN:

Silvia Sgherri (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Alessandro Galesi

idealista ( email )

Madrid, Madrid 28014

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