Shocks and spillovers in the global environment

PhDThe thesis explores different aspects of shocks transmission and spillovers in a global environment. Chapter 1 assesses the effect of participation of countries in IMF programs on their vulnerability to external shocks. The analysis uses vector autoregressive models (hereafter VAR) to construct a proxy for the exposure to external shocks. The article then examines how this impact depends on the participation of a country in IMF programs and finds that a higher rate of participation in IMF arrangements is associated with a smaller vulnerability to external shocks. Chapter 2 focuses on the variation of connectedness among countries with the state of the economy. The connectedness of real output, inflation and financial variables for seven advanced economies is measured via a Bayesian Threshold VAR model. It is reported that the global connectedness is sizable and business cycle dependent, with higher values during recessions. Chapter 3 quantifies the role of monetary and fiscal shocks in advanced and emerging economies using a panel VAR with hierarchical structure. The policy contribution on GDP growth is assessed by means of a structural counterfactual analysis based on conditional forecasts. Results show that global GDP growth benefited from substantial policy support during the global financial crisis but policy tightening thereafter, particularly fiscal consolidation, acted as a significant drag on subsequent global recovery. The final chapter investigates the effects of domestic uncertainty shocks in emerging economies. A new Bayesian algorithm is developed to estimate proxy panel VAR models with hierarchical structure. To identify exogenous uncertainty shocks in the fifteen EMEs, fluctuations in global uncertainty are used as a proxy for domestic uncertainty shocks. The main findings suggest that uncertainty shocks cause severe falls in GDP and stock price indexes, have inflationary effects, depreciate the currency and are not followed by a subsequent overshoot in activity. The replication files for the four chapters of the thesis are available at the following public link: https://www.dropbox.com/sh/3psfj4qhabp3ooz/AAAxgeKADbeaRExI332iWDN1a?dl=