Spillovers of Domestic Shocks

Abstract

Even prior to the extreme volatility just observed, output growth volatility-following protracted decline-was flattening or mildly rising in some countries. More widespread was an increasing tendency from the mid-1990s for shocks in one country to transmit rapidly to other countries, creating the potential for heightened global volatility. The higher sensitivity to foreign shocks, in turn, appears related to stepped-up vertical specialization associated with the integration of emerging markets in international trade. Increased international spillovers call for stronger ex post coordination mechanisms when shocks are large but the best ex ante prevention strategy probably is sensible national policies.Spillovers;Developed countries;Emerging markets;External shocks;Industrial production;Production growth;vertical specialization, output growth, domestic shocks, global trade, output volatility, idiosyncratic shocks, trade intensity, world trade, global production, global supply, international trade, supply chain, aggregate volatility, trade share, trade agreement, lead, trade integration, trade links, free trade agreement, global shocks, oil shock, transport equipment, national policies, global integration, transition countries, trade relationships, bilateral trade, per capita income, trade openness, political economy, free trade, vertical integration, trade costs