## Regional Financial Spillovers Across Europe: A Global VAR Analysis

_IMF Working Papers, February 1, 2009_

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## Bibliographic details
- Authors: Silvia Sgherri, Alessandro Galesi
- Published: February 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871708.001

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### Summary
- Paper constructs a global vector autoregressive (GVAR) model to assess international spillovers following a historical slowdown in U.S. equity prices.
- The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies.
- Country-specific foreign variables are computed using bilateral bank lending exposures.
- Main high-level conclusion: asset prices are the main short-run channel for international transmission of financial shocks; the cost and quantity of credit become more important over longer horizons.
- Additional summary point reiterated: considerable comovements of equity prices across mature financial markets, while effects on credit growth are country-specific.

### Methodology
- Model used: global vector autoregressive (GVAR) model.
- Scope: 27 country-specific models linked by country-specific foreign variables based on bilateral bank lending exposures.
- Variables emphasized include equity prices, credit growth, cost of credit, and quantity of credit.
- Subject areas: Banking, Credit, Econometric analysis, Financial institutions, Financial services, Foreign banks, Interbank rates, Money, Stocks, Vector autoregression.

### Key Findings and Statistics
- 27 country-specific models in the GVAR.
- Composition of the sample: United States; 17 European advanced economies; 9 European emerging economies.
- Results reveal considerable comovements of equity prices across mature financial markets.
- Effects on credit growth are found to be country-specific.
- Short-run transmission channel: asset prices.
- Longer-horizon transmission: increasing contribution from other variables such as the cost and quantity of credit.

### Policy Implications and Interpretations
- Monitoring asset prices is critical for early detection of short-run international financial spillovers.
- Country-specific characteristics matter for credit growth responses; one-size-fits-all credit policies may be ineffective.
- Over longer horizons, policy attention should expand from asset prices to factors affecting cost and quantity of credit (for example, bank lending conditions and interbank dynamics).

*By Silvia Sgherri and Alessandro Galesi; February 1, 2009 — IMF Working Paper.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/regional-financial-spillovers-across-europe-a-global-var-analysis-22630_