Abstract
Panel discussions on global economic performance and the role of economic shocks, often creates the notion that adverse macroeconomic conditions prevailing in dominant economies such as the U.S, tend to have automatic impact on domestic conditions of other economies around the world. This study examined this perceived automatic contagion phenomenon by verifying how key modeled adverse macroeconomic conditions characterizing the U.S economy influence two macroeconomic indicators within selected advanced economies. Empirical estimation via SUR estimation technique verified this contagion phenomenon to some degree; test results suggests adverse macroeconomic conditions such as economic policy uncertainty, inflation expectations etc. can influence core economic indicators within some economies around the world. This study however, also found that not all cross-border interactions exhibits features of the contagion phenomenon, because some economies examined seem to be relatively insulated from modeled cross-border macroeconomic conditions.
Highlights
Do occasional adverse macroeconomic conditions or challenges in the U.S economy automatically influence key domestic macroeconomic indicators or conditions within other economies around the world? If so, do such conditions constrain growth or rather creates economic opportunities within these external economies due to growing integration as some have argued? These questions, spurred by growing divergent views on how macroeconomic conditions within a dominant economy like the U.S impacts domestic economic conditions of other economies around the world, defines the rational for this study
Key variables sourced from this database include U.S economic policy uncertainty (EPU), macroeconomic uncertainty associated with the U.S economy (MEU) – econometrically derived, Inflation expectations in the U.S (InfE), Industrial Productivity (IndPr) and final private consumption expenditures (PCE) associated with selected advanced economies around the world
Still on first part of table 2, unlike U.S economic policy uncertainty variable, this study finds that inflation expectations in the U.S economy tend to have statistically significant impact on private consumption expenditures dynamics within most of the economies tested in the study
Summary
Do occasional adverse macroeconomic conditions or challenges in the U.S economy automatically influence key domestic macroeconomic indicators or conditions within other economies around the world? If so, do such conditions constrain growth or rather creates economic opportunities within these external economies due to growing integration as some have argued? These questions, spurred by growing divergent views on how macroeconomic conditions within a dominant economy like the U.S impacts domestic economic conditions of other economies around the world, defines the rational for this study. This study seeks to test the presumption that adverse US macroeconomic conditions might not necessarily constrain growth of specific macro-indicators among key economies around the world as often believed due to the potential for moderating domestic policies or economic conditions. To examine this economic contagion effect phenomenon, this study employs three “adverse” macroeconomic conditions modeled as a feature characterizing the U.S economy; and estimate how industrial productivity and domestic private consumption expenditures among six selected advanced economies around the world react to such macroeconomic conditions. Section five provides empirical results of the estimation process, examination and discussions of the results, conclusions and policy implications of the results
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