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Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries

Tamim Bayoumi and Andrew Swiston

IMF Staff Papers, 2009, vol. 56, issue 2, 353-383

Abstract: Vector autoregressions of real growth since 1970 are used to estimate spillovers between the United States, the euro area, Japan, and an aggregate of smaller countries proxying for global shocks. U.S. and global shocks generate significant spillovers, but those from the euro area and Japan are small. This paper calculates the standard errors of impulse-response functions, including uncertainty over the proper Cholesky ordering. Extensions adding exports, commodity prices, and financial variables indicate that financial effects are the largest source of spillovers. The results by subperiod underline the importance of the great moderation in U.S. output fluctuations and associated financial stability in lowering output volatility elsewhere. IMF Staff Papers (2009) 56, 353–383. doi:10.1057/imfsp.2008.23; published online 9 September 2008

Date: 2009
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