Title: Connectedness and spillovers in recession and boom
Authors: Mirela Sorina Miescu - Lancaster University (United Kingdom) [presenting]
Abstract: The aim is to investigate the state-dependent nature of spillover effects and the connectedness among countries. Employing the Diebold-Yilmaz connectedness measure we estimate a non-linear VAR model for a group of 7 advanced economies using post WW II monthly data. We find that the group connectedness and the spillover effects tend to be higher in times of recession compared to normal times. The directional results show that European countries are more susceptible to shocks originated in USA and Japan, while USA remains quite insulated from developments that occur in Europe. Finally we show that on top of growth surprises, financial and inflationary shocks are also relevant in explaining the spillover effects among countries. This analysis is of more than academic interest as policymakers are concerned with the domestic vulnerabilities to external shocks. A better understanding of the international business cycle would increase their ability to deal with sudden rises in the economic comovements in the years to come.