Asymmetries in Financial Spillovers

Financial shocks, such as the one observed during the global financial crisis, exhibit important domestic and international consequences on macroeconomic aggregates (see, e.g., Dovern and van Roye, 2014; Ciccarelli et al., 2016; Prieto et al., 2016; Gerba et al., 2024). Policymakers in central banks and governmental institutions, who aim to smooth business cycles and thus alleviate the negative effects of adverse financial disruptions, need to understand how such shocks impact the economy and propagate internationally to implement policies in a forward-looking manner. The recent literature provides plenty of evidence on the domestic and international effects of US financial shocks (see Balke, 2000; Gilchrist and Zakrajšek, 2012; Cesa-Bianchi and Sokol, 2022). These papers find that financial shocks exert powerful effects on domestic output but also that US-based shocks spill over to foreign economies and trigger declines in international economic activity. Such effects might be subject to time variation (Abbate et al., 2016).