Transmission of the debt crisis: From EU15 to USA or vice versa? A GVAR approach

In this paper, we estimate a GVAR model in order to study the transmission of shocks between the EU15 and the USA economies, respectively, on a quarterly basis in the 2000 (Q1)–2011 (Q4) time span. Our work is based on the global variables of trade and credit which act as the transmission channels, whereas EU15 is being treated as a single economy. Our main finding is that a shock in the US Debt has significant and persistent results on the EU15 and US economies. In general, the EU15 economy seems to be more vulnerable to the various shocks while US Debt is found to affect significantly in the short run its EU15 counterpart.