Spillovers of Domestic Shocks: Will They Counteract the “Great Moderation”?

Author/Editor:

Ashoka Mody ; Alina Carare

Publication Date:

March 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Even prior to the extreme volatility just observed, output growth volatility-following protracted decline-was flattening or mildly rising in some countries. More widespread was an increasing tendency from the mid-1990s for shocks in one country to transmit rapidly to other countries, creating the potential for heightened global volatility. The higher sensitivity to foreign shocks, in turn, appears related to stepped-up vertical specialization associated with the integration of emerging markets in international trade. Increased international spillovers call for stronger ex post coordination mechanisms when shocks are large but the best ex ante prevention strategy probably is sensible national policies.

Series:

Working Paper No. 2010/078

Subject:

Financial crises Production growth Spillovers Stocks Structural vector autoregression

English

Publication Date:

March 1, 2010

ISBN/ISSN:

9781451982213/1018-5941

Stock No:

WPIEA2010078

Pages:

29

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