The transmission effects of the subprime crisis to emerging markets: A global VAR analysis

Abstract The objective of this paper is to analyze the transmission cycle in the United States in emerging markets. In this work we present a quarterly global model (GVAR) that combines individual economies vector error-correcting models in which the domestic variables are related to the country-specific foreign variables. The global VAR (GVAR) model is estimated for 32 countries over the period 1980-2013. It has the advantage of studying the effect of shocks from the U.S to emerging markets in particular the interdependence between national and international cycles. In addition to generalized impulse responses, the current paper considers the use of the GVAR for structural impulse response analysis with focus on external shocks for the emerging economy, particularly in response to shocks to the U.S The results confirm that the U.S plays an important role in the transmission of business cycles and an economic recession affecting the U.S tends to affect emerging economies.