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Roberto Rigobon

16 March 2005
The paper presents a framework for analyzing the degree of financial transmission between money, bond and equity markets and exchange rates within and between the United States and the euro area. We find that asset prices react strongest to other domestic asset price shocks, and that there are also substantial international spillovers, both within and across asset classes. The results underline the dominance of US markets as the main driver of global financial markets: US financial markets explain, on average, more than 25% of movements in euro area financial markets, whereas euro area markets account only for about 8% of US asset price changes. The international propagation of shocks is strengthened in times of recession, and has most likely changed in recent years: prior to EMU, the paper finds smaller international spillovers.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F3 : International Economics→International Finance
C5 : Mathematical and Quantitative Methods→Econometric Modeling
15 November 2016
This paper reviews the empirical literature on international spillovers and contagion. Theoretical models of spillover and contagion imply that the reduced form observable variables suffer from two possible sources of bias: endogeneity and omitted variables. These econometric problems in combination with the heteroskedasticity that plagues the data produces time varying biases. Several empirical methodologies are evaluated from this perspective: non-parametric techniques such as correlations and principal components, as well as parametric methods such as OLS, VAR, event studies, ARCH, Non-linear regressions, etc. The paper concludes that there is no single technique that can solve the full fledge problem and discusses three methodologies that can partially address some of the questions in the literature.
JEL Code
C30 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→General
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
C10 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→General