The GVAR Handbook: Structure and Applications of a Macro Model of the Global Economy for Policy Analysis
Filippo di Mauro and M. Hashem Pesaran
Abstract
The recent crisis has shown yet again how the world economies are globally interlinked, via a complex net of transmission channels. When it comes, however, to build econometric frameworks aimed at analysing such linkages, modellers are faced with what is called the "curse of dimensionality": there far too many parameters to be estimated with respect to the available observations. The GVAR, a VAR based model of the global economy, offers a solution to this problem. The basic model is composed of a large number of country specific models, comprising domestic, foreign and purely global variables. ... More
The recent crisis has shown yet again how the world economies are globally interlinked, via a complex net of transmission channels. When it comes, however, to build econometric frameworks aimed at analysing such linkages, modellers are faced with what is called the "curse of dimensionality": there far too many parameters to be estimated with respect to the available observations. The GVAR, a VAR based model of the global economy, offers a solution to this problem. The basic model is composed of a large number of country specific models, comprising domestic, foreign and purely global variables. The foreign variables, however, are treated as weakly exogenous. This assumption, which is typically held when empirically tested for virtually all economies - with the notable exception of the US which is treated differently - allows to estimate first the individual country models separately. Only in a second stage country-specific models are simultaneously solved, thus allowing global interactions.This volume presents - for a first time in a compact and rather easy to read format - principles and structure of the basic GVAR model and a number of its many applications and extensions developed in the last few years by a growing literature. Its main objective is to show how powerful the model can be as a tool for forecasting and scenario analysis. The clear modelling structure of the GVAR appeals to policy makers and practitioners as shown by its growing use among major institutions, as well as by econometricians, as shown by the main extensions and applications.
Keywords:
international linkages,
global VAR,
global macroeconomic modelling,
global interdependencies,
policy simulations
Bibliographic Information
Print publication date: 2013 |
Print ISBN-13: 9780199670086 |
Published to Oxford Scholarship Online: May 2013 |
DOI:10.1093/acprof:oso/9780199670086.001.0001 |
Authors
Affiliations are at time of print publication.
Filippo di Mauro, editor
Senior Adviser, European Central Bank
M. Hashem Pesaran, editor
Professor of Economics, University of Cambridge; John Elliott Chair, University of Southern California; and a Professorial Fellow of Trinity College, Cambridge
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