Global Macro Spillover Monitor

Overview

Analyzes how major economic events in one country, like a China slowdown or a European energy crisis, ripple through the global economy. This pillar quantifies the spillover effect on domestic inflation, growth, and policy decisions.

What It Does

This pillar monitors high-frequency trade data, financial flows, and commodity prices between major economic blocs. It uses econometric models to estimate the magnitude and timing of shocks transmitted through these channels. The analysis focuses on calculating the pass-through from external events to key domestic indicators like GDP and CPI.

Why It Matters

Most market analysis is domestically focused, often missing crucial external drivers. This pillar provides a predictive edge by identifying and quantifying international risks and opportunities before they are fully priced in, offering a more complete picture of economic momentum.

How It Works

First, it identifies a significant external shock using global news and data. Second, it gathers relevant data on trade, import prices, and financial linkages between the source country and the target country. Finally, it applies vector autoregression models to forecast the likely impact on the target country's economic metrics over the next 6 to 18 months.

Methodology

The core analysis uses Global Vector Autoregression (GVAR) models incorporating trade-weighted variables. It calculates impulse response functions to measure the impact of a one-standard-deviation shock in a foreign variable (e.g., China's industrial production) on domestic variables (e.g., US inflation). The models use quarterly data with a rolling 10-year window to adapt to changing economic relationships.

Edge & Advantage

It moves beyond simple correlations by modeling the complex and often delayed transmission of global shocks, providing a more nuanced and forward-looking economic forecast.

Key Indicators

• Global Supply Chain Pressure Index (GSCPI)

  high

  A composite index from the NY Fed that measures the extent of disruptions in global supply chains.

• Import Price Index Pass-through

  high

  Measures the rate and lag at which changes in import prices affect domestic consumer price inflation.

• China Credit Impulse

  medium

  A leading indicator of Chinese economic activity, which signals future demand for global commodities and goods.

Data Sources

• Federal Reserve Bank of New York

  Provides the Global Supply Chain Pressure Index (GSCPI) data.

• International Monetary Fund (IMF)

  Offers global financial stability reports, trade data, and country-level economic forecasts.

• Bureau of Labor Statistics (BLS)

  Publishes the U.S. Import and Export Price Indexes (MXP).

Example Questions This Pillar Answers

• → Will US quarterly core CPI inflation be over 3.5% in Q4 2024?
• → Will Eurozone GDP growth for the next quarter be below 0.5%?
• → Will the Bank of England raise interest rates in its next monetary policy meeting?

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