INTERNATIONAL MONETARY SHOCKS

A vector autoregressive (VAR) model linking the economies of the main countries (or monetary zones) in the world - the USA, the Eurozone, Japan and China - is built to analyse the effects on their economies produced by the monetary policy of each one. The economies are characterized by four variables: nominal exchange rate against the US dollar, consumer price, quantity of money in terms of M1, and GDP. The estimation of the VAR model is of the Bayesian type, in order to take into account not only the data but also the opinions of the model builder. Estimation is performed by use of the method of dummy observations as the number of variables is high, twice the maximum normally used in VAR models. A monetary shock in the USA produces the usual effects on economies of the USA themselves, Japan, and the Eurozone, whilst one in the latter increases the output not only in itself but also in the USA. Monetary shocks in Japan and China have poor effects on their own economies.