Nonlinear impacts of international business cycles on the UK : a bayesian smooth transition var approach.
Employing a Bayesian approach, we investigate the impact of international business cycles on the U.K. economy in the context of a smooth transition VAR. We find that the British business cycle is asymmetrically influenced by growth in the U.S., France and Germany. Overall, positive and negative shocks generating in the U.S. or France affect the U.K. in the same directions as the shock. However, a shock emanating from Germany, whether positive or negative, always exerts negative cumulative effects on the U.K. Further, a positive shock arising from Germany adversely affects the U.K. output growth more than a negative shock of the same size.