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Spillovers of Domestic Shocks

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  • Ashoka Mody
  • Alina Carare

Abstract

Even prior to the extreme volatility just observed, output growth volatility-following protracted decline-was flattening or mildly rising in some countries. More widespread was an increasing tendency from the mid-1990s for shocks in one country to transmit rapidly to other countries, creating the potential for heightened global volatility. The higher sensitivity to foreign shocks, in turn, appears related to stepped-up vertical specialization associated with the integration of emerging markets in international trade. Increased international spillovers call for stronger ex post coordination mechanisms when shocks are large but the best ex ante prevention strategy probably is sensible national policies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/78.

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Length: 29
Date of creation: 01 Mar 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/78

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Related research

Keywords: Spillovers; Developed countries; Emerging markets; External shocks; Industrial production; Production growth; vertical specialization; output growth; domestic shocks; global trade; output volatility; idiosyncratic shocks; trade intensity; world trade; global production; global supply; international trade; supply chain; aggregate volatility; trade share; trade agreement; lead; trade integration; trade links; free trade agreement; global shocks; oil shock; transport equipment; national policies; global integration; transition countries; trade relationships; bilateral trade; per capita income; trade openness; political economy; free trade; vertical integration; trade costs;

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References

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  1. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series 0865, European Central Bank.
  2. Linda Tesar & Ariel Burstein & Chris Kurz, 2005. "Trade, Production Sharing and the International Transmission of Business Cycles," 2005 Meeting Papers 304, Society for Economic Dynamics.
  3. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
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  7. Nir Jaimovich & Henry E. Siu, 2007. "The young, the old, and the restless: demographics and business cycle volatility," Staff Report 387, Federal Reserve Bank of Minneapolis.
  8. Eichengreen, Barry & Mody, Ashoka & Nedeljkovic, Milan & Sarno, Lucio, 2012. "How the Subprime Crisis went global: Evidence from bank credit default swap spreads," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1299-1318.
  9. Emanuele Breda & Rita Cappariello & Roberta Zizza, 2007. "Vertical Specialisation in Europe: Evidence from the Import Content of Exports," Rivista di Politica Economica, SIPI Spa, vol. 97(3), pages 189, May-June.
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  12. Mody, Ashoka & Taylor, Mark P., 2006. "Regional Vulnerability : The Case of East Asia," The Warwick Economics Research Paper Series (TWERPS) 776, University of Warwick, Department of Economics.
  13. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  14. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2005. "Understanding the Evolution of World Business Cycles," IMF Working Papers 05/211, International Monetary Fund.
  15. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
  16. Andrei A. Levchenko & Logan T. Lewis & Linda L. Tesar, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," NBER Working Papers 16006, National Bureau of Economic Research, Inc.
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  18. Tatiana Cesaroni & Louis Maccini & Marco Malgarini, 2009. "Business cycle volatility and inventories behavior:new evidence for the Euro Area," ISAE Working Papers 108, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  19. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Nikolaos Antonakakis & Harald Badinger, 2012. "Output Volatility, Economic Growth, and Cross-Country Spillovers: New Evidence for the G7 Countries," Department of Economics Working Papers wuwp141, Vienna University of Economics, Department of Economics.
  2. Erden, Lutfi & Ozkan, Ibrahim, 2014. "Determinants of international transmission of business cycles to Turkish economy," Economic Modelling, Elsevier, vol. 36(C), pages 383-390.
  3. Constant Lonkeng Ngouana, 2013. "Structural Transformation and the Volatility of Aggregate Output in OECD Countries," IMF Working Papers 13/43, International Monetary Fund.
  4. Bornhorst, Fabian & Mody, Ashoka, 2012. "Test of the German resilience," CFS Working Paper Series 2012/14, Center for Financial Studies (CFS).
  5. Steffen Henzel & Elisabeth Wieland, 2013. "Synchronization and Changes in International Inflation Uncertainty," CESifo Working Paper Series 4194, CESifo Group Munich.
  6. Fabian Bornhorst & Ashoka Mody, 2012. "Tests of German Resilience," IMF Working Papers 12/239, International Monetary Fund.

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