Introduction

Abstract

The period subsequent to the financial crisis highlighted that global demand plays an important role in driving economic recoveries. At the same time, global economic policy uncertainties have been elevated and global policy rates have reached historic low levels to mitigate the adverse effects of these uncertainties. Current global growth is characterised by diverging GDP growth rates with the US growing at high pace, while the Chinese growth is slowing down. This book explores the role global economic growth, policy shifts and uncertainties play in transmitting various shocks into the domestic economy. Part I covers the effects of global economic growth and trade uncertainties on the domestic economy. In addition, the book explores the role of BRICS GDP growth as sources of shocks and/or amplifiers of global growth shocks. Part II focuses on how the US Fed policy rate normalisation process and changes in global interest rates are transmitted into the domestic economy. Part III deals with capital flow surges, sudden stops and elevated portfolio volatility shock effects on the domestic economy. We test the relevance of the argument that since the 1990s foreign capital inflows shocks resulted in the sectorial reallocation of credit. Furthermore, we test whether equity and debt inflows matter in the attainment of the price stability mandate. Part IV focuses on the transmission of sovereign debt credit ratings downgrades into government debt costs and real economic activity. We assess the role played by the confidence channel in the propagation of sovereign debt credit ratings changes on GDP growth. Also, the relevance of indirect channels through which the sovereign debt credit ratings downgrade shocks are transmitted via the cost of government debt and borrowing to impact credit growth. Part V deals with the output–inflation trade-off of how adverse global trade shocks, labour market conditions and inflation expectations shocks shift the domestic Taylor curve. In addition, this part of the book explores the role of inflation regimes in the pass-through of nominal demand shocks.