2004/04/01 by M. Hashem Pesaran, Til Schuermann, Scott M Weiner +1 · 2 citations
Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #Global Financial Crisis and Policies #Monetary Policy and Economic Impact
paper · doi:10.1198/073500104000000019
openalex publication_date 2004/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
Financial institutions are ultimately exposed to macroeconomic fluctuations in the global economy. This article proposes and builds a compact global model capable of generating forecasts for a core set of macroeconomic factors (or variables) across a number of countries. The model explicitly allows for the interdependencies that exist between national and international factors. Individual region-specific vector error-correcting models are estimated in which the domestic variables are related to corresponding foreign variables constructed exclusively to match the international trade pattern of the country under consideration. The individual country models are then linked in a consistent and cohesive manner to generate forecasts for all of the variables in the world economy simultaneously. The global model is estimated for 25 countries grouped into 11 regions using quarterly data over 1979Q1–1999Q1. The degree of regional interdependencies is investigated via generalized impulse responses where the effects of shocks to a given variable in a given country on the rest of the world are provided. The model is then used to investigate the effects of various global risk scenarios on a bank's loan portfolio.