Assessing Global Economic Activity Linkages : An Empirical Exercise Based on Global Autoregressive Regression

Economic performance increasingly relies on global economic environment due to the growing importance of international trade and financial links among countries. Literature on growth spillovers shows various gains obtained by this interaction. In this context, this work aims to analyze the possible effects of a potential economic growth downturn in China, Germany and United States on the growth of other economies. To assess the interdependence among countries, we use global auto regressive regression approach. Two types of phenomena are simulated. The first one mimic a single shock hitting these economies. Our simulations use a large shock of -2.5 standard deviations, a figure very similar to what we saw back in the 2008 crisis. The second experiment simulates the effect of a hypothetical downturn of the aforementioned economies. Our results suggest that the United States plays the role of a global economy, affecting countries across the globe, whereas Germany and China play a regional role