Deconstructing the International Business Cycle : Why does a U.S. sneeze give the rest of the world a cold?

Author/Editor:

International Monetary Fund

Publication Date:

October 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The 2008 crisis underscored the interconnectedness of the international business cycle, with U.S. shocks leading to the largest global slowdown since the 1930s. We estimate spillover effects across major advanced country regions in a structural VAR (SVAR) using pre-crisis data. Our new method freely estimates the contemporaneous correlation matrix for underlying shocks in the VAR and (uniquely, to our knowledge) the associated uncertainty. Our results suggest that the international business cycle is largely driven by U.S. financial shocks with a significant impact from global shocks, mainly reflecting commodity prices. Other advanced economic regions play a much smaller and regional role in growth spillovers. Our findings are consistent with the emerging evidence on the current crisis

Series:

Working Paper No. 10/239

Subject:

English

Publication Date:

October 1, 2010

ISBN/ISSN:

9781455209392/1018-5941

Stock No:

WPIEA2010239

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

28

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