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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

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.

Suggested Citation

  • Tilak Abeysinghe & Kristin J. Forbes, 2001. "Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia," NBER Working Papers 8600, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8600
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    References listed on IDEAS

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    1. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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