We develop a technique to evaluate macroeconomic connectedness in any multi-country macroeconomic model with an approximate VAR representation. We apply our technique to a large Global VAR covering 25 countries and derive vivid representations of the connectedness of the system. We show that the US, the Eurozone and the crude oil market exert a dominant influence in the global economy and that the Chinese and Brazilian economies are also globally significant. Recursive analysis over the period of the global financial crisis shows that shocks to global equity markets are rapidly and forcefully transmitted to real trade flows and real GDP.JEL classification: C32, C53, E17

We study spillovers among daily returns and innovations in the option-implied risk-neutral volatility and skewness of the G10 currencies. Using an empirical network model, we uncover substantial time variation in the interaction of returns and risk measures, both within and between currencies. We find that aggregate spillover intensity is countercyclical with respect to the federal funds rate and increases in periods of financial stress. Cross-currency spillovers of volatility and especially of skewness increase in times of stress, reflecting greater systematic risk. Similarly, in such times, returns become more sensitive to risk measures and vice versa.

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SUMMARY We apply a global vector autoregressive (GVAR) model to the analysis of inflation, output growth and global imbalances among a group of 33 countries (26 regions). We account for structural instability by use of country‐specific intercept shifts, the timings of which are identified taking into account both statistical evidence and our knowledge of historic economic conditions and events. Using this model, we compute both central forecasts and scenario‐based probabilistic forecasts for a range of events of interest, including the sign and trajectory of the balance of trade, the achievement of a short‐term inflation target, and the incidence of recession and slow growth. The forecasting performance of the GVAR model in relation to the ongoing financial crisis is quite remarkable. It correctly identifies a pronounced and widespread economic contraction accompanied by a marked shift in the net trade balance of the Eurozone and Japan. Moreover, this promising out‐of‐sample forecasting performance is substantiated by a raft of statistical tests which indicate that the predictive accuracy of the GVAR model is broadly comparable to that of standard benchmark models over short horizons and superior over longer horizons. Hence we conclude that GVAR models may be a useful forecasting tool for institutions operating at both the national and supra‐national levels. Copyright © 2010 John Wiley & Sons, Ltd.

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