Exploring the International Linkages of the Euro Area: A Global VAR Analysis

By Stéphane Dées, Di Filippo, Mauro, M. Hashem, Pesaran, L. Smith, Ron Smith, Mardi Dungy, Til Schuermann, Raf Wouters. Social Science Research Network, 2006

359 citations recorded by the source corpus.

This paper presents a global model linking individual country vector error-correcting models in which the domestic variables are related to the country-specific variables as an approximate solution to a global common factor model. This global VAR is estimated for 26 countries, the euro area being treated as a single economy. This paper proposes two important extensions of previous research (see Pesaran, Schuermann and Weiner, 2004). First, it provides a theoretical framework where the GVAR is derived as an approximation to a global unobserved common factor model. Also using average pair-wise cross-section error correlations, the GVAR approach is shown to be quite effective in dealing with the common factor interdependencies and international comovements of business cycles. Second, in addition to generalised impulse response functions, we propose an identification scheme to derive structural impulse responses. We focus on identification of shocks to the US economy, particularly the monetary policy shocks, and consider the time profiles of their effects on the euro area. To this end we include the US model as the first country model and consider alternative orderings of the US variables. Further to the US monetary policy shock, we also consider oil price, US equity and US real output shocks.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/7800cf1d3a885f93801fdabe44a4f626f682ecaa

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Citations in the corpus

Oil Exports and the Iranian Economy (2013, positive): “93 (this procedure was also adopted in Dees et al. (2007)).”
Large Bayesian vector auto regressions (2010, neutral): “For datasets with a panel structure an alternative approach has been to impose exclusion, exogeneity or homogeneity restrictions, as in global VARs (cf. Dees et al., 2007) and panel VARs (cf. Canova and Ciccarelli, 2004), for example.”
Self-reinforcing effects between housing prices and credit: an extended version (2013, positive): “Alternatively, weak exogeneity can be tested along the lines of Johansen (1992), Harbo et al. (1998), Pesaran et al. (2004) and Dees et al. (2007), i.e. by including the two cointegrating vectors we document below in the marginal model for the turnover and then test their joint significance.”