Estimating the international transmission of shocks using GDP forecasts: India and its trading partners

The knowledge of the patterns of inter-country propagation of economic shocks and the degree of vulnerability of a particular country to shocks originating from other countries is crucial for sound macroeconomic management. The relative robustness of the Indian and the Chinese economies in the recent Asian crisis has been remarkable. The availability of this sort of information is particularly important for Central Banks because they design and implement monetary policy mandates for price stability and GDP growth on a day-to-day basis. Because of these reasons, there is a growing interest in the sources of macroeconomic fluctuations and transmission of shocks in an international perspective. However, most of the research in this area has traditionally focused on industrialized countries, and only a few have studied the dynamics of the transmission of shocks involving developing economies.