Exploring the international linkages of the euro area: a global VAR analysis

Abstract This paper presents a quarterly global model combining individual country vector error‐correcting models in which the domestic variables are related to the country‐specific foreign variables. The global VAR (GVAR) model is estimated for 26 countries, the euro area being treated as a single economy, over the period 1979–2003. It advances research in this area in a number of directions. In particular, it provides a theoretical framework where the GVAR is derived as an approximation to a global unobserved common factor model. Using average pair‐wise cross‐section error correlations, the GVAR approach is shown to be quite effective in dealing with the common factor interdependencies and international…

• EA
  Economic and Social Research Council

  Award: RES-000-