The Impact of the US Stock Market on The BRICS and G7: A GVAR Approach

Luccas Assis Attílio, João Ricardo Faria, Mauricio Prado*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

156 Downloads (Pure)

Abstract

Purpose:
The authors investigate the impact of the US stock market on the economies of the BRICS and major industrialized economies (G7).

Design/methodology/approach:
The authors construct the world economy and the vulnerability between economies using three economic integration variables: bilateral trade, bilateral direct investment and bilateral equity positions. Global vector autoregressive (GVAR) empirical studies usually adopt trade integration to estimate models. The authors complement these studies by using bilateral financial flows.

Findings:
The authors summarize the results in four points: (1) financial integration variables increase the effect of the US stock market on the BRICS and G7, (2) the US shock produces similar responses in these groups regarding industrial production, stock markets and confidence but different responses regarding domestic currencies: in the BRICS, the authors detect appreciation of the currencies, while in the G7, the authors find depreciation, (3) G7 stock markets and policy rates are more sensitive to the US shock than the BRICS and (4) the estimates point out to heterogeneities such as the importance of industrial production to the transmission shock in Japan and China, the exchange rate to India, Japan and the UK, the interest rates to the Eurozone and the UK and confidence to Brazil, South Africa and Canada.

Research limitations/implications:
The results reinforce the importance of taking into account different levels of economic development.

Originality/value:
The authors construct the world economy and the vulnerability between economies using three economic integration variables: bilateral trade, bilateral direct investment and bilateral equity positions. GVAR empirical studies usually adopt trade integration to estimate models. The authors complement these studies by using bilateral financial flows.
Original languageEnglish
JournalJournal of Economic Studies
Volume51
Issue number7
Pages (from-to)1481-1506
Number of pages26
ISSN0144-3585
DOIs
Publication statusPublished - Aug 2024

Bibliographical note

Published online: 7. February 2024.

Keywords

  • Stock market
  • Financial flow
  • Bilateral trade
  • Transmission channel

Cite this