International interdependency of macroeconomic activities: a multivariate empirical analysis
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International interdependency of macroeconomic activities: a multivariate empirical analysis Sanjay Kumar Rou 1 & Hrushikesh Mallick 1 # Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract Given the international interdependency of macroeconomic activities, this study attempts to examine three fundamental questions; (i) what is the time pattern of international interdependency?, (ii) what is the magnitude of international interdependency?, and (iii) which are the major channels through which international interdependency occur?. These questions are investigated among major economies viz. the US, Japan, Germany, China, India and Russia. Employing generalized impulse response of unrestricted VAR model, the Diebold and Yilmaz (Int J Forecast 28(1):57– 66, 2012) spillover method and orthogonal impulse response of restricted VAR model, the study found that the global economies are highly interdependent. Therefore, we strongly argue that channels through which interdependency between countries occur are based on economic structure of respective economies. From the findings, it explicitly indicates that if there is rise or fall of macroeconomic activity in any specific economy, it may lead to rise or fall in economic activity of other individual economies. It shows a positive correlationship between the movement of economic actvities among the countries. Given the higher degree of international interdependency, it may sometimes lead to larger cost for the individual economies. Therefore, it suggests that the formulation and implementation of rigorous macroeconomic policies are the need of the hour for respective economies. Considering the gaps in the previous literature, this study tries to contribute to the literature by investigating cross-country time profile of interactions, magnitude of interactions and channels through which interactions occur.
* Sanjay Kumar Rou [email protected] Hrushikesh Mallick [email protected]
1
Centre for Development Studies, Prasanth Nagar, Ulloor, Thiruvananthapuram, Kerala 695011, India
S. K. Rou, H. Mallick
Keywords Advanced economies . Emerging economies . International interdependency .
Macroeconomic activities . Vector autoregressive model . Impulse response function . Diebold and Yilmaz spillover method JEL classification F4 . F6 . O4
1 Introduction In the twenty-first century, the degree of interdependency among the economies has increased many folds as a result of liberalisation and market deregulation policies being pursued around the world. In this context, number of questions arise such as; whether international interdependency affect macroeconomic activity of any particular economy positively or negatively? Does the impact mould by the development of the economies? How does the international interdependency affect advanced and emerging economies? Which is the most important channel through which international interdependency occurs? These are very fundamental questions which attract much attention from not only policymakers but also from almost al
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