This paper examines linkages across North America by estimating the size of spillovers from the major regions of the world-the United States, euro area, Japan, and the rest of the world-to Canada and Mexico, and decomposing the impact of these spillovers into trade, commodity price, and financial market channels. For Canada, a one percent shock to U.S. real GDP shifts Canadian real GDP by some ¾ of a percentage point in the same direction- with financial spillovers more important than trade in recent decades. Thus, a large proportion of the reduction in Canadian output volatility since the 1980s can be accounted for by the "Great Moderation" in U.S. growth. Before 1996, domestic volatility in Mexico swamped the contribution of external factors to the business cycle. After 1996, the response of Mexican GDP is 1½ times the size of the U.S. shock-"when the U.S. sneezes, Mexico catches a cold". These spillovers are transmitted through both trade and financial channels.
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Paper provided by International Monetary Fund in its series IMF Working Papers with number
08/3.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2007.
"Outsourcing and Volatility,"
NBER Working Papers
13144, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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Bergin, Paul & Feenstra, Robert & Hanson, Gordon, 2006.
"Outsourcing and Volatility,"
Working Papers
06-28, University of California at Davis, Department of Economics.
Gregory, Allan W & Head, Allen C & Raynauld, Jacques, 1997.
"Measuring World Business Cycles,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 677-701, August.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)