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The GVAR approach and the dominance of the U.S. economy
This paper extends the recent literature about global macroeconomic modelling by allowing the presence of a globally dominant economy. Our contribution is both theoretical and empirical. From a theoretical standpoint, we follow Chudik and Pesaran (2011 and 2012) to derive the GVAR approach as an approximation to two Infinite-Dimensional VAR (IVAR) models featuring nonstationary variables: one corresponding to the world consisting of several small open economies (benchmark model), and one corresponding to the world featuring a dominant economy (extended model). ; It is established that in the ...