Dynamic Coupling of the U.S. and Canadian Industrial Production Indices

Abstract

We study the coupling of the United States and Canada's industrial production indices using a non-linear autoregressive model. Estimating the exponential smooth transition autoregressive (ESTAR) model in the literature is improved with an expanded set of specifications. We identify the dynamic linkage between the United States and Canada and evaluate the forecast performance of each model. The results show the non-linear autoregressive model with bilateral trade linkage to outperform other models suggested by existing studies.

Keywords: Business Cycle, Dynamic Coupling, Non-linear Time-Series Forecast

JEL Classification: C32, E32, E37