Measuring the Connectedness of the Global Economy

57 Pages Posted: 30 Mar 2015

See all articles by Matthew Greenwood-Nimmo

Matthew Greenwood-Nimmo

University of Melbourne; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Viet Hoang Nguyen

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Yongcheol Shin

University of York (UK) - Department of Economics and Related Studies

Date Written: March 29, 2015

Abstract

We develop a technique to evaluate macroeconomic connectedness in any multi-country macroeconomic model with an approximate VAR representation. We apply our technique to a large Global VAR covering 25 countries and derive vivid representations of the connectedness of the system. We show that the US, the Eurozone and the crude oil market exert a dominant influence in the global economy and that the Chinese and Brazilian economies are also globally significant. Recursive analysis over the period of the global financial crisis shows that shocks to global equity markets are rapidly and forcefully transmitted to real trade flows and real GDP.

Keywords: Generalised Connectedness Measures (GCMs), international linkages, network analysis, macroeconomic connectedness

JEL Classification: C32, C53, E17

Suggested Citation

Greenwood-Nimmo, Matthew and Nguyen, Viet Hoang and Shin, Yongcheol, Measuring the Connectedness of the Global Economy (March 29, 2015). Melbourne Institute Working Paper No. 7/15, Available at SSRN: https://ssrn.com/abstract=2586861 or http://dx.doi.org/10.2139/ssrn.2586861

Matthew Greenwood-Nimmo (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Viet Hoang Nguyen

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Yongcheol Shin

University of York (UK) - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

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