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Identifying the global transmission of the 2007-09 financial crisis in a GVAR Model

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  • Fratzscher, Marcel
  • Chudik, Alexander

Abstract

The paper analyses and compares the role that the tightening in liquidity conditions and the collapse in risk appetite played for the global transmission of the financial crisis. Dealing with identification and the large dimensionality of the empirical exercise with a Global VAR approach, the findings highlight the diversity of the transmission process. While liquidity shocks have had a more severe impact on advanced economies, it was mainly the decline in risk appetite that affected emerging market economies. The tightening of financial conditions was a key transmission channel for advanced economies, whereas for emerging markets it was mainly the real side of the economy that suffered. Moreover, there are some striking differences also within types of economies, with Europe being more adversely affected by the fall in risk appetite than other advanced economies. JEL Classification: E44, F3, C5

Suggested Citation

  • Fratzscher, Marcel & Chudik, Alexander, 2011. "Identifying the global transmission of the 2007-09 financial crisis in a GVAR Model," Working Paper Series 1285, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111285
    Note: 335955
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    More about this item

    Keywords

    advanced economies; emerging market economies; financial crisis; global transmission; Global VAR (GVAR); liquidity; modelling; risk; shocks; US;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance

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