Journal Article

International Transmission and Business Cycle Effects of Financial Stress

Journal of Financial Stability

We analyze the international transmission of financial stress and its eff ects on global

economic activity. Our analysis is based on country-specifi c monthly financial stress

indices (FSIs) over the sample period 1970-2012 for 20 major economies. First, we

show that co-movement between the FSIs increases during major financial crises

and towards the end of our sample period. Second, we show that the risk of large

financial stress spillovers to an economy increases with its level of economic openness.

Third, we show{using a global VAR (GVAR) model{that i) a financial stress

shock in the US quickly transmits internationally, ii) financial stress shocks have

lagged but persistent negative e effcts on economic activity, and iii) that a negative

US demand shock induces only limited financial stress on a global scale. Finally,

we show that spillovers of financial stress run mainly from advanced to emerging

economies and not in the opposite direction.


Björn van Roye
Jonas Dovern


Publication Date
JEL Classification
E32, E52, F36, F37, F41