Over the course of 2018, economic activity in major advanced foreign economies and emerging markets—including the euro area and China—decelerated noticeably. In parallel, foreign growth projections for 2019 and 2020 were revised down, signaling potentially large headwinds for the U.S. economy over the medium term. In this article we use a multi-country simulation model to quantify economic spillovers to the United States from a slowdown originating in the euro area. Next, we compare these results with spillovers from a slowdown originating in China. We find that spillovers to the U.S. economy from a slowdown in the euro area are sizable, mainly because of a lack of monetary policy space in the region along with greater financial integration between Europe and the United States. Standard trade-related spillovers to the United States from a slowdown in China, instead, are quantitatively limited. The pace of global economic activity slowed down in  the second half of 2018 owing to a variety of factors 

 affecting the major economies, in particular, China and  the euro area. Moreover, global growth forecasts for 2019 were revised down markedly. For example, the consensus forecast for annual euro-area GDP growth in 2019 dropped from 1.9 percent in mid-2018 to 1.1 percent at the beginning of 2019. Although U.S. domestic fundamentals were not projected to weaken at a similar pace, market participants promptly recognized that a global slowdown was bound to represent a significant source of macroeconomic headwinds for the U.S. economy. In this article, we provide a quantitative assessment  of the extent to which these external developments could affect the U.S. macroeconomic outlook. As a first pass to gauge the quantitative implications of foreign spillovers, we consider a number of model-based simulations adopting the SIGMA model, a multi-country dynamic stochastic general equilibrium (DSGE) model developed at the Federal Reserve Board for policy evaluation and scenario analysis. SIGMA offers a rich benchmark framework for the analysis of cross-border spillovers and trade interdependencies among countries. The model reflects current state of the art in terms of open economy modeling, and it serves our purpose of examining alternative scenarios in terms of different degrees of international financial markets integration among different economies and the possibility that economies might be constrained in terms of monetary policy space.1 Specifically, in our simulations we use a three-country version of SIGMA calibrated to a U.S. bloc, an advanced foreign economy (AFE) bloc, and an emerging market economy (EME) bloc. Given the three-bloc structure of the model economy, we assume that a slowdown in the GDP growth of the euro area or China leads to a decline in AFE or EME GDP growth by the same magnitude, respectively. Compared to the EME bloc, the AFE bloc is characterized by a relatively higher degree of trade and financial integration with respect to the United States. In the different regions covered in the simulations, monetary policies are assumed to follow inertial Taylor rules in which the nominal interest rate responds to the deviation of domestic inflation from the central bank’s inflation target and to the deviation of output from potential output, subject to a zero-lower bound (ZLB) constraint. To understand the interplay between limited policy space and higher financial integration within advanced economies, we proceed in two steps. We  begin by considering a foreign slowdown (here, modeled as being due to a loss of consumer confidence that gives rise to a fall in consumption expenditure) when policy space in the AFE bloc is unrestricted and interest rates are above the ZLB. Next, we focus on the relevant case in which monetary policy in the AFE bloc is subject to the ZLB constraint. We consider two scenarios: In the first one, the global slowdown originates in the euro area (which is part of the AFE bloc); in the second one, the slowdown originates in China (which is part of the EME bloc). We find that the transmission of the China-led slowdown to the United States through trade and financial linkages is 

 quantitatively limited, despite the fact that EMEs currently account for a large share of the global economy.2 The impact on the U.S. economy of a slowdown originating in the euro area is larger, mainly because of the greater financial integration within advanced economies. Intuitively, higher financial integration implies that the bulk of international adjustment occurs through a current account rebalancing: The contraction in total domestic demand in the AFE bloc generates larger capital outflows and more pronounced depreciation of the euro vis-à-vis the U.S. dollar. This translates into a bigger trade deficit in the United States and, hence, contributes to a more significant U.S. downturn compared with a similar slowdown originating in the EME bloc. When monetary policy space is limited in the AFE bloc, the effects of higher financial integration are amplified and the economic contraction in the U.S. economy becomes even more severe. This article is organized as follows. Section 1 provides a brief overview of the model and characterizes the different regional blocs. Section 2 describes the recent performance of real GDP growth in major foreign economies. Section 3 outlines our quantitative experiments. Section 4 concludes.