The Transmission of Financial Shocks on a Global Scale: Some New Empirical Evidence

We examine shocks to capital flows from the United States, the Eurozone, and China. A US interest rate rise is contractionary for the United States but produces positive growth elsewhere. Cross-border claims and US interest rate shocks have been more subdued since the global financial crisis, consistent with the portfolio rebalancing hypothesis. Negative claims shocks from the Eurozone have opposite macroeconomic effects than when the same shock hits the United States due to the predominance of bank-intermediated financing in the Eurozone. Real and financial link exists between China and the Eurozone. The United States is relatively immune to shocks from China of the kind investigated here.