The Impact of the Global Business Cycle on Small Open Economies: A FAVAR Approach for Canada
AbstractBuilding on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, we use a factor-augmented VAR (FAVAR) model with more than 260 series for 20 OECD countries to analyze how global developments affect the Canadian economy. We focus on several sources of shocks, including commodity prices, foreign economic activity, and foreign interest rates. We evaluate the impact of each shock on key Canadian macroeconomic variables to provide a comprehensive picture of the effect of international shocks on the Canadian economy. Our findings indicate that Canada is primarily exposed to shocks to foreign activity and to commodity prices. In contrast, the impact of shocks to global interest rates or global inflation is substantially lower. Our findings also expose the different channels through which higher commodity prices impact the Canadian economy: Canada benefits from higher commodity prices through a positive terms of trade shock, but at the same time, higher commodity prices tend to lower global economic activity, hurting demand for Canadian exports.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 11-2.
Length: 32 pages
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
International topics; Econometric and statistical methods; Business fluctuations and cycles;
Other versions of this item:
- Vasishtha, Garima & Maier, Philipp, 2013. "The impact of the global business cycle on small open economies: A FAVAR approach for Canada," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 191-207.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-BEC-2011-02-12 (Business Economics)
- NEP-CBA-2011-02-12 (Central Banking)
- NEP-INT-2011-02-12 (International Trade)
- NEP-MAC-2011-02-12 (Macroeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Juan José Echavarría & Andrés gonzález & Enrique López & Norberto Rodríguez, 2012.
"Choques internacionales reales y financieros y su impacto sobre la economía colombiana,"
BORRADORES DE ECONOMIA
009884, BANCO DE LA REPÚBLICA.
- Juan José Echavarría & Andrés González & Enrique López & Norberto Rodíguez, 2012. "Choques internacionales reales y financieros y su impacto sobre la economía colombiana," Borradores de Economia 728, Banco de la Republica de Colombia.
- Eickmeier, Sandra & Lemke, Wolfgang & Marcellino, Massimiliano, 2011.
"The changing international transmission of financial shocks: evidence from a classical time-varying FAVAR,"
Discussion Paper Series 1: Economic Studies
2011,05, Deutsche Bundesbank, Research Centre.
- Eickmeier, Sandra & Lemke, Wolfgang & Marcellino, Massimiliano, 2011. "The Changing International Transmission of Financial Shocks: Evidence from a Classical Time-Varying FAVAR," CEPR Discussion Papers 8341, C.E.P.R. Discussion Papers.
- Edda Claus & Chew Lian Chua & G. C. Lim, 2011. "Regional Indexes of Activity: Combining the Old with the New," Melbourne Institute Working Paper Series wp2011n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.