lynx   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/spr/qualqt/v57y2023i2d10.1007_s11135-022-01423-8.html
   My bibliography  Save this article

Small open economies and external shocks: an application of Bayesian global vector autoregression model

Author

Listed:
  • Samuel F. Onipede

    (Central Bank of Nigeria)

  • Nafiu A. Bashir

    (Central Bank of Nigeria)

  • Jamaladeen Abubakar

    (Central Bank of Nigeria)

Abstract
This study assesses the impact of external shocks on select small open economies (SOEs) using the Bayesian variant of the global vector autoregression model with time varying parameters and stochastic volatility. We account for the curse of dimensionality in the multi-country VAR system by implementing three different priors in the estimation of the parameters of the model: the Minnesota (M-N) prior of Doan–Litterman et al. (1984; Litterman 1986); the Normal-Gamma (N-G) prior of Park and Casella (Bayesian Anal 1:515–533, 2008); and the Stochastic Search Variable Selection (SSVS) prior of George and McCulloch (1995) as extended by Koop and Korobilis (2010, 2013). From our simulation results, we found that global economies of the USA, Western Europe and China are the major drivers of cyclical fluctuation in the SOEs. However, in spite of the perceived superior influence of China on the SOEs GDPs’ response to external shocks, we found no evidence to conclude that the influence is significantly greater than those exerted by the United States or Europe on the bloc’s economies.

Suggested Citation

  • Samuel F. Onipede & Nafiu A. Bashir & Jamaladeen Abubakar, 2023. "Small open economies and external shocks: an application of Bayesian global vector autoregression model," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(2), pages 1673-1699, April.
    • Handle: RePEc:spr:qualqt:v:57:y:2023:i:2:d:10.1007_s11135-022-01423-8
    DOI: 10.1007/s11135-022-01423-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11135-022-01423-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11135-022-01423-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Martin Feldkircher & Thomas Gruber & Florian Huber, 2017. "Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy," Department of Economics Working Papers wuwp248, Vienna University of Economics and Business, Department of Economics.
    2. Rangan Gupta & Chi Keung Marco Lau & Mark E. Wohar, 2019. "The impact of US uncertainty on the Euro area in good and bad times: evidence from a quantile structural vector autoregressive model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 353-368, May.
    3. Dimitris Korobilis, 2013. "Var Forecasting Using Bayesian Variable Selection," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 204-230, March.
    4. Koop, Gary & Korobilis, Dimitris, 2016. "Model uncertainty in Panel Vector Autoregressive models," European Economic Review, Elsevier, vol. 81(C), pages 115-131.
    5. Haroon Mumtaz & Francesco Zanetti, 2013. "The Impact of the Volatility of Monetary Policy Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 535-558, June.
    6. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
    7. Dovern, Jonas & Feldkircher, Martin & Huber, Florian, 2016. "Does joint modelling of the world economy pay off? Evaluating global forecasts from a Bayesian GVAR," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 86-100.
    8. Mumtaz, Haroon & Theodoridis, Konstantinos, 2017. "Common and country specific economic uncertainty," Journal of International Economics, Elsevier, vol. 105(C), pages 205-216.
    9. Jonas E. Arias & Juan Rubio-Ramirez & Daniel F. Waggoner, 2013. "Inference Based on SVARs Identied with Sign and Zero Restrictions: Theory and Applications," Working Papers 2013-24, FEDEA.
    10. Fabio Canova & Matteo Ciccarelli, 2009. "Estimating Multicountry Var Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 929-959, August.
    11. Haroon Mumtaz & Konstantinos Theodoridis, 2015. "The International Transmission Of Volatility Shocks: An Empirical Analysis," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 512-533, June.
    12. Huber, Florian, 2016. "Density forecasting using Bayesian global vector autoregressions with stochastic volatility," International Journal of Forecasting, Elsevier, vol. 32(3), pages 818-837.
    13. Giordani, Paolo & Kohn, Robert, 2008. "Efficient Bayesian Inference for Multiple Change-Point and Mixture Innovation Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 66-77, January.
    14. Koop, Gary & Korobilis, Dimitris, 2010. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(4), pages 267-358, July.
    15. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
    16. Jean-Pierre Allegret & Mohamed Tahar Benkhodja, 2011. "External Shocks and Monetary Policy in a Small Open Oil Exporting Economy," Working Papers hal-04140941, HAL.
    17. Jesús Crespo Cuaresma & Martin Feldkircher & Florian Huber, 2016. "Forecasting with Global Vector Autoregressive Models: a Bayesian Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1371-1391, November.
    18. Jamie L. Cross & Chenghan Hou & Aubrey Poon, 2018. "International Transmission of Macroeconomic Uncertainty in Small Open Economies: An Empirical Approach," Working Papers No 12/2018, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    19. Pesaran, M. Hashem & Schuermann, Til & Smith, L. Vanessa, 2009. "Forecasting economic and financial variables with global VARs," International Journal of Forecasting, Elsevier, vol. 25(4), pages 642-675, October.
    20. Eickmeier, Sandra & Ng, Tim, 2015. "How do US credit supply shocks propagate internationally? A GVAR approach," European Economic Review, Elsevier, vol. 74(C), pages 128-145.
    21. Haroon Mumtaz & Paolo Surico, 2015. "The Transmission Mechanism In Good And Bad Times," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1237-1260, November.
    22. Gary Koop & Dimitris Korobilis, 2012. "Forecasting Inflation Using Dynamic Model Averaging," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 867-886, August.
    23. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    24. Canova, Fabio & Paustian, Matthias, 2011. "Business cycle measurement with some theory," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 345-361.
    25. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    26. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    27. Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2016. "Common Drifting Volatility in Large Bayesian VARs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(3), pages 375-390, July.
    28. Gerlach, Stefan & Schnabel, Gert, 2000. "The Taylor rule and interest rates in the EMU area," Economics Letters, Elsevier, vol. 67(2), pages 165-171, May.
    29. Florian Huber & Martin Feldkircher, 2019. "Adaptive Shrinkage in Bayesian Vector Autoregressive Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(1), pages 27-39, January.
    30. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    31. Koop, Gary & Korobilis, Dimitris, 2013. "Large time-varying parameter VARs," Journal of Econometrics, Elsevier, vol. 177(2), pages 185-198.
    32. Feldkircher, Martin & Gruber, Thomas & Huber, Florian, 2020. "International effects of a compression of euro area yield curves," Journal of Banking & Finance, Elsevier, vol. 113(C).
    33. Kastner, Gregor, 2016. "Dealing with Stochastic Volatility in Time Series Using the R Package stochvol," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 69(i05).
    34. Todd E. Clark & Francesco Ravazzolo, 2012. "The macroeconomic forecasting performance of autoregressive models with alternative specifications of time-varying volatility," Working Papers (Old Series) 1218, Federal Reserve Bank of Cleveland.
    35. Feldkircher, Martin & Huber, Florian, 2016. "The international transmission of US shocks—Evidence from Bayesian global vector autoregressions," European Economic Review, Elsevier, vol. 81(C), pages 167-188.
    36. Koop, Gary, 1996. "Parameter uncertainty and impulse response analysis," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 135-149.
    37. Gupta, Rangan & Ma, Jun & Risse, Marian & Wohar, Mark E., 2018. "Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 317-337.
    38. Pesaran, M. Hashem & Schuermann, Til & Smith, L. Vanessa, 2009. "Rejoinder to comments on forecasting economic and financial variables with global VARs," International Journal of Forecasting, Elsevier, vol. 25(4), pages 703-715, October.
    39. Jamie L. Cross & Chenghan Hou & Aubrey Poon, 2018. "International transmissions of aggregate macroeconomic uncertainty in small open economies: An empirical approach," CAMA Working Papers 2018-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    40. Haroon Mumtaz & Paolo Surico, 2015. "The Transmission Mechanism In Good And Bad Times," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1237-1260, November.
    41. repec:mcb:jmoncb:v:45:y:2013:i::p:535-558 is not listed on IDEAS
    42. George, Edward I. & Sun, Dongchu & Ni, Shawn, 2008. "Bayesian stochastic search for VAR model restrictions," Journal of Econometrics, Elsevier, vol. 142(1), pages 553-580, January.
    43. Lukman Oyeyinka Oyelami & P.A. Olomola, 2016. "External shocks and macroeconomic responses in Nigeria: A global VAR approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1239317-123, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin Feldkircher & Gabriele Tondl, 2020. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 225-247, August.
    2. Yu Bai & Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2022. "Macroeconomic forecasting in a multi‐country context," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1230-1255, September.
    3. Feldkircher, Martin & Gruber, Thomas & Huber, Florian, 2020. "International effects of a compression of euro area yield curves," Journal of Banking & Finance, Elsevier, vol. 113(C).
    4. Pfarrhofer, Michael, 2023. "Measuring International Uncertainty Using Global Vector Autoregressions with Drifting Parameters," Macroeconomic Dynamics, Cambridge University Press, vol. 27(3), pages 770-793, April.
    5. Dovern, Jonas & Feldkircher, Martin & Huber, Florian, 2016. "Does joint modelling of the world economy pay off? Evaluating global forecasts from a Bayesian GVAR," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 86-100.
    6. Jesús Crespo Cuaresma & Gernot Doppelhofer & Martin Feldkircher & Florian Huber, 2019. "Spillovers from US monetary policy: evidence from a time varying parameter global vector auto‐regressive model," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 182(3), pages 831-861, June.
    7. George N. Apostolakis & Nikolaos Giannellis & Athanasios P. Papadopoulos, 2023. "Macro‐financial effects of monetary policy easing," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 715-738, April.
    8. Crespo Cuaresma, Jesus & Doppelhofer, Gernot & Feldkircher, Martin & Huber, Florian, 2018. "Spillovers from US monetary policy: Evidence from a time-varying parameter GVAR model," Discussion Paper Series in Economics 31/2018, Norwegian School of Economics, Department of Economics.
    9. Lastauskas, Povilas & Nguyen, Anh Dinh Minh, 2023. "Global impacts of US monetary policy uncertainty shocks," Journal of International Economics, Elsevier, vol. 145(C).
    10. Martin Feldkircher & Florian Huber & Gary Koop & Michael Pfarrhofer, 2022. "APPROXIMATE BAYESIAN INFERENCE AND FORECASTING IN HUGE‐DIMENSIONAL MULTICOUNTRY VARs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1625-1658, November.
    11. Huber, Florian, 2016. "Density forecasting using Bayesian global vector autoregressions with stochastic volatility," International Journal of Forecasting, Elsevier, vol. 32(3), pages 818-837.
    12. Florian Huber & Tam'as Krisztin & Michael Pfarrhofer, 2018. "A Bayesian panel VAR model to analyze the impact of climate change on high-income economies," Papers 1804.01554, arXiv.org, revised Feb 2021.
    13. Maximilian Böck & Martin Feldkircher & Florian Huber, 2020. "BGVAR: Bayesian Global Vector Autoregressions with Shrinkage Priors in R," Globalization Institute Working Papers 395, Federal Reserve Bank of Dallas.
    14. Apostolakis, George N. & Giannellis, Nikolaos, 2024. "International financial stress spillovers during times of unconventional monetary policy interventions," Journal of Financial Stability, Elsevier, vol. 72(C).
    15. Gary Koop & Dimitris Korobilis, 2019. "Forecasting with High‐Dimensional Panel VARs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(5), pages 937-959, October.
    16. Hauzenberger, Niko, 2021. "Flexible Mixture Priors for Large Time-varying Parameter Models," Econometrics and Statistics, Elsevier, vol. 20(C), pages 87-108.
    17. Michael Pfarrhofer & Anna Stelzer, 2019. "High-frequency and heteroskedasticity identification in multicountry models: Revisiting spillovers of monetary shocks," Papers 1912.03158, arXiv.org, revised Dec 2024.
    18. Korobilis, Dimitris, 2016. "Prior selection for panel vector autoregressions," Computational Statistics & Data Analysis, Elsevier, vol. 101(C), pages 110-120.
    19. Sona Benecka & Ludmila Fadejeva & Martin Feldkircher, 2018. "Spillovers from Euro Area Monetary Policy: A Focus on Emerging Europe," Working Papers 2018/04, Latvijas Banka.
    20. Korobilis, Dimitris, 2015. "Prior selection for panel vector autoregressions," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-73, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    Keywords

    Small open economies (SOEs); Bayesian global VAR; External shock; Time varying parameters; Stochastic volatility;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:qualqt:v:57:y:2023:i:2:d:10.1007_s11135-022-01423-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.
    Лучший частный хостинг