Spillovers Across Nafta

34 Pages Posted: 25 Jan 2008

See all articles by Andrew J. Swiston

Andrew J. Swiston

International Monetary Fund (IMF)

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Date Written: Janurary 2008

Abstract

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 3/4 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 1 1/2 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.

Keywords: Trade, Canada, Mexico, Commodity prices, Capital markets

Suggested Citation

Swiston, Andrew J. and Bayoumi, Tamim, Spillovers Across Nafta (Janurary 2008). IMF Working Papers, Vol. , pp. 1-32, 2008. Available at SSRN: https://ssrn.com/abstract=1087182

Andrew J. Swiston (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Tamim Bayoumi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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