How External Factors Affect Domestic Economy: Nowcasting an Emerging Market
Electronic Access:
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Summary:
External headwinds, together with domestic vulnerabilities, have loomed over the prospects of emerging markets in recent years. We propose an empirical toolbox to quantify the impact of external macro-financial shocks on domestic economies in parsimonious way. Our model is a Bayesian VAR consisting of two blocks representing home and foreign factors, which is particularly useful for small open economies. By exploiting the mixed-frequency nature of the model, we show how the toolbox can be used for “nowcasting” the output growth. The conditional forecast results illustrate that regular updates of external information, as well as domestic leading indicators, would significantly enhance the accuracy of forecasts. Moreover, the analysis of variance decompositions shows that external shocks are important drivers of the domestic business cycle.
Series:
Working Paper No. 2015/269
Subject:
Business cycles Cyclical indicators Economic forecasting Economic growth Industrial production Oil prices Production Production growth
English
Publication Date:
December 23, 2015
ISBN/ISSN:
9781513598987/1018-5941
Stock No:
WPIEA2015269
Pages:
23
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