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Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia

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Tilak Abeysinghe
Kristin J. Forbes

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Abstract

This paper develops a structural VAR model to measure how a shock to one country can affect the GDP of other countries. It uses trade linkages to estimate the multiplier effects of a shock as it is transmitted through other countries' output fluctuations. The paper introduces a new specification strategy that significantly reduces the number of unknowns and allows cross-country relationships to vary over time. Then it uses this model to examine the impact of shocks to 11 Asian countries, the U.S. and the rest of the OECD. The model produces reasonably good short-term forecasts. Impulse-response matrices suggest that these multiplier effects are large and significant and can transmit shocks in very different patterns than predicted from a bilateral-trade matrix. For example, due to these output-multiplier effects, a shock to one country can have a large impact on countries that are relatively minor bilateral trading partners.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8600.

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Date of creation: Nov 2001
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Handle: RePEc:nbr:nberwo:8600

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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  1. Korhonen, Iikka & Ledyaeva, Svetlana, 2008. "Trade linkages and macroeconomic effects of the price of oil," BOFIT Discussion Papers 16/2008, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  2. Yu-Feng L. Lee, 2007. "Bilateral Trade and Intra-Regional Business Cycles: Is East Asia Feasible for a Currency Area?," Global Economy Journal, Berkeley Electronic Press, vol. 7(3). [Downloadable!]
  3. Nils Jannsen, 2009. "National and International Business Cycle Effects of Housing Crises," Kiel Working Papers 1510, Kiel Institute for the World Economy. [Downloadable!]
  4. Enrico Tanuwidjaja & Choy Keen Meng, 2005. "Central Bank Credibility and Monetary Policy: Evidence from Small Scale Macroeconomic Model of Indonesia," SCAPE Policy Research Working Paper Series 0514, National University of Singapore, Department of Economics, SCAPE. [Downloadable!]
  5. Enrico Tanuwidjaja & Choy Keen Meng, 2009. "Central Bank Credibility and Monetary Policy- Evidence from Small Scale Macroeconomic Model of Indonesia," Macroeconomics Working Papers 1665, East Asian Bureau of Economic Research. [Downloadable!]
  6. Ana Beatriz Galvão & Michael Artis & Massimiliano Marcellino, 2007. "The transmission mechanism in a changing world," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 39-61. [Downloadable!]
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  7. Tilak Abeysinghe & Gulasekaran Rajaguru, 2003. "Quarterly Real GDP Estimates for China and ASEAN4 with a Forecast Evaluation," Departmental Working Papers wp0404, National University of Singapore, Department of Economics. [Downloadable!]
    Other versions:
  8. Eric Girardin, 2004. "Regime-dependent synchronization of growth cycles between Japan and East Asia," Money Macro and Finance (MMF) Research Group Conference 2004 66, Money Macro and Finance Research Group. [Downloadable!]
  9. Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor and Francis Journals, vol. 16(10), pages 717-729, June. [Downloadable!] (restricted)
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