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Spillovers Across Nafta

  • Tamim Bayoumi
  • Andrew 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.

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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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  1. Steve Ambler & Emanuela Cardia & Christian Zimmermann, 1999. "International Business Cycles: What are the Facts?," Cahiers de recherche CREFE / CREFE Working Papers 90, CREFE, Université du Québec à Montréal.
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  11. Tamim Bayoumi & Andrew Swiston, 2007. "Foreign Entanglements; Estimating the Source and Size of Spillovers Across Industrial Countries," IMF Working Papers 07/182, International Monetary Fund.
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  17. P J Perez & D R Osborn & M Sensier, 2003. "Business Cycle Affiliations in the Context of European Integration," Centre for Growth and Business Cycle Research Discussion Paper Series 29, Economics, The Univeristy of Manchester.
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  20. P&aauml;r �sterholm & Jeromin Zettelmeyer, 2008. "The Effect of External Conditions on Growth in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 595-623, December.
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