Cross-Country Linkages in Europe: A Global VAR Analysis

75 Pages Posted: 11 Mar 2014

See all articles by Yan Sun

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department

Frigyes Heinz

International Monetary Fund (IMF)

Giang Ho

International Monetary Fund (IMF)

Date Written: September 2013

Abstract

This paper uses the Global VAR (GVAR) model proposed by Pesaran et al. (2004) to study cross-country linkages among euro area countries, other advanced European countries (including the Nordics, the UK, etc.), and the Central, Eastern and Southeastern European (CESEE) countries. An innovative feature of the paper is the use of combined trade and financial weights (based on BIS reporting banks’ external position data) to capture the very close trade and financial ties of the CESEE countries with the advanced Europe countries. The results show strong co-movements in output growth and interest rates but weaker linkages bewteen inflation and real credit growth within Europe. While the euro area is the dominant source of economic influences, there are also interesting subregional linkages, e.g. between the Nordic and the Baltic countries, and a small but notable impact of CESEE countries on the rest of the Europe.

Keywords: Economic integration, Europe, Euro Area, Developed countries, Emerging markets, Cross country analysis, Economic models, Spillover, Global VAR, regional model, macro-financial linkages, emerging Europe, gdp growth, real gdp, inflation, growth rate, long-term interest rates, monetary fund, central bank, government securities, monetary policy, gdp growth rate, interest rates on government securities, growth model, real per capita income, gross domestic product

JEL Classification: C32, E17, F47

Suggested Citation

Sun, Yan and Heinz, Frigyes and Ho, Giang, Cross-Country Linkages in Europe: A Global VAR Analysis (September 2013). IMF Working Paper No. 13/194. Available at SSRN: https://ssrn.com/abstract=2407522

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Frigyes Heinz

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Giang Ho

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

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