IMF paper identifies countries that ‘pass through’ spillovers

Some countries are more likely to pass on shocks than others – typically developed economies or major trading nations – and the macroeconomic policies in those countries "play an important role in preserving global stability", according to a working paper published by the IMF on July 6.

In Network Effects of International Shocks and Spillovers, Alexei Kireyev and Andrei Leonidov argue individual countries can amplify, absorb or block spillovers, depending on their economic and structural characteristics.

"Typically, the higher the level of development and openness to trade, and the better the business environment, the higher the probability that a country would pass-through international shocks by either amplifying or partially absorbing them," the authors say.

As such, the macroeconomic policies in those countries can be crucial in "constraining" negative shocks and "expanding" positive ones. Core amplifiers include the US, Switzerland, Italy, South Korea, and India, the authors say, while notable absorbers are Japan, Germany and France.

"[These countries] bear significant responsibility for overall international economic stability," the authors conclude. "Negative shock spillovers, originated outside the core, may be successfully mitigated by coordinated macroeconomic policies of core countries."