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Spillovers Across NAFTA


  • Tamim Bayoumi
  • Andrew J Swiston


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.

Suggested Citation

  • Tamim Bayoumi & Andrew J Swiston, 2008. "Spillovers Across NAFTA," IMF Working Papers 08/3, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/3

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    References listed on IDEAS

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Yan M Sun & Wendell A. Samuel, 2009. "ECCU Business Cycles; Impact of the U.S," IMF Working Papers 09/71, International Monetary Fund.
    2. Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?," Economic Modelling, Elsevier, vol. 28(6), pages 2701-2718.
    3. repec:eee:ecmode:v:69:y:2018:i:c:p:160-168 is not listed on IDEAS
    4. 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.
    5. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico; How Important are U.S. Factors?," IMF Working Papers 08/100, International Monetary Fund.
    6. Yan M Sun, 2011. "From West to East; Estimating External Spillovers to Australia and New Zealand," IMF Working Papers 11/120, International Monetary Fund.

    More about this item


    Commodity prices; Capital markets; Business cycles; Canada; Spillovers; Mexico; Trade; NAFTA; correlation; covariance; correlations;

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