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Foreign Entanglements; Estimating the Source and Size of Spillovers Across Industrial Countries

  • Tamim Bayoumi
  • Andrew Swiston

VARs of real growth since 1970 are used to estimate spillovers between the U.S., euro area, Japan, and an aggregate of small industrial countries, which proxies for global shocks. U.S. and global shocks generate significant spillovers, while those from the euro area and Japan are small. This paper also calculates the standard errors of impulse-response functions including uncertainty over the proper Cholesky ordering. Extensions adding real net exports, commodity prices, and financial variables indicate that financial effects dominate spillovers. The results by subperiod underline the importance of the great moderation in U.S. output fluctuations and associated financial stability in lowering output volatility elsewhere.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/182.

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Length: 52
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/182
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  1. Jon Faust & John H. Rogers & Shing-Yi B. Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers 784, Board of Governors of the Federal Reserve System (U.S.).
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  8. Juillard, Michel & Karam, Philippe & Laxton, Douglas & Pesenti, Paolo, 2006. "Welfare-based monetary policy rules in an estimated DSGE model of the US economy," Working Paper Series 0613, European Central Bank.
  9. Canova, Fabio & Dellas, Harris, 1993. "Trade interdependence and the international business cycle," Journal of International Economics, Elsevier, vol. 34(1-2), pages 23-47, February.
  10. Andrew Swiston & Tamim Bayoumi, 2007. "The Ties That Bind: Measuring International Bond Spillovers Using the Inflation-Indexed Bond Yields," IMF Working Papers 07/128, International Monetary Fund.
  11. Michael D. Bordo & Thomas Helbling, 2003. "Have National Business Cycles Become More Synchronized?," NBER Working Papers 10130, National Bureau of Economic Research, Inc.
  12. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Equal size, equal role? Interest rate interdependence between the Euro area and the United States," CFS Working Paper Series 2003/46, Center for Financial Studies (CFS).
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