Measuring macroeconomic and financial market interdependence: a critical survey

Abstract

Purpose Study of the interdependence among economies is of considerable importance. This area includes issues such as the increasing importance of regional economic interactions, the effects of economic growth and recession in the advanced economies on emerging market countries, and financial contagion. A wide range of related terms and methodologies are used in the literature of interdependence. The purpose of this paper is to review the major concepts and various measurements of interdependence in financial markets and the real economy, serving as a reference and benchmark for future research on interdependence among specific regional or global economies. Design/methodology/approach Major measurements of interdependence are reviewed from simple approach to more complicated ones, and strengths and weaknesses of the various measurements of interdependence are discussed. Findings This paper surveys the various major measurements of interdependence and illustrates how they have been used to address a substantial range of issues. Originality/value The paper shows that studies of macroeconomic and financial interdependence use the same types of econometric measurements. The review and critiques of these various types of measures should be of value to those wishing to do research in these areas and also to those wishing to have a better understanding of papers that they read.

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