The international transmission of US shocks: Evidence from Bayesian global vector autoregressions

Abstract We analyze international spillovers of expansionary US aggregate demand and supply shocks, and of a contractionary US monetary policy shock. For that purpose we use a Bayesian version of the global vector autoregressive model coupled with a prior specification that explicitly accounts for uncertainty regarding variable choice. Our results are three-fold: first, we find significant spillovers of all three shocks, with the monetary policy shock impacting most strongly on international output. Second, the dynamics of the receiving countries׳ responses depend on the structural interpretation of the respective shock. Third, \{US\} shocks tend to spread globally through the financial channel (i.e., interest rates) and the trade channel (i.e., the real effective exchange rate).