Risto Herrala (Bank of Finland): Assessing the Global Impact of the Chinese Economy
Co-author: Fabrice Orlandi (European Commission)
We study the global impact of the Chinese economy indirectly with a forecast error model. The novel application of this model type builds on the discovery of an equivalence between causal influence and the channel from data revisions of the causing variable to forecast errors of the caused variable. Empirical findings using the real-time World Economic Outlook dataset over the period 2004 ̶ 15 indicate that real GDP growth spillover from China to other countries was primarily negative in the short to mid-term perspective. However, the estimations furthermore reveal a changing pattern of spillover across countries and time. While negative spillover was prevalent during the global financial crisis, spillover was mostly positive during the rest of the sample period.
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