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Inquiry on the transmission of U.S. aggregate shocks to Mexico: A SVAR approach

Julio Carrillo (), Rocio Elizondo and Luis G. Hernández-Román

Journal of International Money and Finance, 2020, vol. 104, issue C

Abstract: We analyze the business cycle co-movement between Mexico and the US. We identify two shocks affecting US aggregate supply, three affecting its demand, and two types of monetary policy surprises with different financial implications. US shocks explain about 75% of expected output fluctuations in Mexico at a three-year horizon, with US demand shocks driving half of these variations alone. In turn, Mexican output responses to a monetary policy surprise in the US depend on the reaction of investors’ sentiment to said surprise. Finally, for the sample period studied, financial-market interconnections are as important as goods-demand linkages for the international transmission of US shocks.

Keywords: SVAR Model; Small Open Economy; International Propagation of Macro Shocks (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Inquiry on the Transmission of U.S. Aggregate Shocks to Mexico: A SVAR Approach (2017) Downloads
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DOI: 10.1016/j.jimonfin.2020.102148

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