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Spillovers Across Nafta

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Author Info

  • Tamim Bayoumi
  • Andrew Swiston

Abstract

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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/3.

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Length: 32
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/3

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Related research

Keywords: Spillovers; Business cycles; Trade; Commodity prices; correlation; covariance; correlations; equation; standard error; standard errors; covariances; probability; interest rates; equations; probabilities; vector autoregression; standard deviation; causation; random walk; sample size; survey; autocorrelation; probability distribution; experimental data; statistics;

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References

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Citations

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Cited by:
  1. Yan Sun, 2011. "From West to East," IMF Working Papers 11/120, International Monetary Fund.
  2. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico," IMF Working Papers 08/100, International Monetary Fund.
  3. Louis, Rosmy J & Brown, Ryan & Balli, Faruk, 2009. "Are Mortgage Rates Bubbling Up Trouble for Canadas Metropolitan Housing Sector?," MPRA Paper 17245, University Library of Munich, Germany.
  4. Yan Sun & Wendell A. Samuel, 2009. "ECCU Business Cycles," IMF Working Papers 09/71, International Monetary Fund.

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