Network Effects of International Shocks and Spillovers

Abstract

This paper proposes a method for assessing international spillovers from nominal demand shocks. It quantifies the impact of a shock in the crisis country on all other countries. The paper concludes that the network effects in shock spillovers can be substantial, comparable, and often exceed the initial shock. Individual countries may amplify, absorb, or block spillovers. Most developed countries pass-through shocks, whereas low-income countries and oil exporters tend to block shock spillovers. The method is used to study demand shocks originating from a large and medium country, China and Ukraine respectively.