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Nonlinear impacts of international business cycles on the UK - A Bayesian smooth transition VAR approach

By Deborah Gefang and Rodney Strachan

Abstract

Employing a Bayesian approach, we investigate the impact of international\ud business cycles on the UK economy in the context of a smooth\ud transition VAR. We find that British business cycle is asymmetrically\ud influenced by the US, France and Germany. Overall, positive and negative\ud shocks generating in the US or France affect the UK in the same\ud directions of the shock. Yet, a shock emanating from Germany always\ud exerts negative accumulative effects on the UK. More strikingly, a positive\ud shock arising from Germany negatively affects UK output growth\ud more than a negative shock from Germany of the same size. These results\ud suggest that the appropriate UK economic policy depends upon\ud the origin, size and direction of the external shocks

Topics: International business cycle, Bayesian, smooth transition vector autoregression model
Publisher: Dept. of Economics, University of Leicester
Year: 2008
OAI identifier: oai:lra.le.ac.uk:2381/7478

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