Measuring the Connectedness of the Global Economy

We develop a technique to exploit forecast error variance decompositions evaluate the macroeconomic connectedness embedded in any multi-country model with an approximate vector autoregressive (VAR) representation. apply our large global VAR covering 25 countries and derive vivid representations of connectedness. find that US exerts dominant influence economy Brazil, China, Eurozone are also globally significant. Recursive analysis over period financial crisis shows shocks equity markets transmitted rapidly forcefully real trade flows GDP.