International Propagation of Shocks: A Dynamic Factor Model Using Survey Forecasts

45 Pages Posted: 29 Oct 2018

See all articles by Kajal Lahiri

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Yongchen Zhao

Towson University - Department of Economics

Date Written: September 13, 2018

Abstract

This paper studies the pathways for the propagation of shocks across G7 and major Asia-Pacific countries using multi-horizon forecasts of real GDP growth from 1995 to 2017. We show that if the forecasts are efficient in the long run, results obtained using the forecasts are comparable to those obtained from the actual outturns. We measure global business cycle connectedness and study the impact of country-specific shocks as well as common international shocks using a panel factor structural VAR model. Our results suggest strong convergence of business cycles within the group of industrialized countries and the group of developing economies during non-recessionary periods. In particular, we find increased decoupling between the industrialized and developing economies after the 2008 recession. However, the direction of shock spillovers during recessions and other crisis periods are varied, depending on the nature and origin of the episode.

Keywords: GDP Growth, Business Cycle Connectedness, Transmission of Shocks, Common International Shocks, Panel VAR Model, Blue Chip Surveys

JEL Classification: F41, F42, E32, C33

Suggested Citation

Lahiri, Kajal and Zhao, Yongchen, International Propagation of Shocks: A Dynamic Factor Model Using Survey Forecasts (September 13, 2018). Available at SSRN: https://ssrn.com/abstract=3248865 or http://dx.doi.org/10.2139/ssrn.3248865

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Yongchen Zhao (Contact Author)

Towson University - Department of Economics ( email )

Towson, MD 21204
United States

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