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

_IMF Working Papers, July 1, 2007_

## Source details

**Canonical URL:** [Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries](https://www.imf.org/en/publications/wp/issues/2016/12/31/foreign-entanglements-estimating-the-source-and-size-of-spillovers-across-industrial-21192)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/foreign-entanglements-estimating-the-source-and-size-of-spillovers-across-industrial-21192/index.md)
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## Bibliographic details
- Authors: Tamim Bayoumi, Andrew J Swiston
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867466.001

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### Methodology
- Uses VARs of real growth since 1970 to estimate spillovers across regions.
- Regions analyzed: the U.S., euro area, Japan, and an aggregate of small industrial countries (proxying for global shocks).
- Calculates standard errors of impulse-response functions, explicitly incorporating uncertainty over the proper Cholesky ordering.
- Extensions include adding:
  - real net exports,
  - commodity prices,
  - financial variables.

### Key findings and empirical results
- U.S. shocks generate significant spillovers to other industrial countries.
- Global shocks (proxied by the aggregate of small industrial countries) generate significant spillovers.
- Shocks originating in the euro area and Japan produce small spillovers relative to the U.S. and global shocks.
- Extensions show that financial effects dominate spillovers when financial variables are included.
- Subperiod analysis highlights the role of the great moderation in U.S. output fluctuations and associated financial stability in lowering output volatility in other countries.

### Policy-relevant implications
- Financial stability in the U.S. has substantial implications for output volatility abroad; policies promoting U.S. financial stability can reduce international volatility.
- Monitoring global (aggregate small-industrial-country) shocks is important given their significant cross-border spillovers.
- The relatively smaller spillovers from the euro area and Japan suggest heterogeneity in transmission channels; policy coordination efforts should account for asymmetric external influence.

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## Content in this bundle

- **_wp07182 - Decomposition of Responses to Rest of World GDP Shocks**
  - [_wp07182 - Decomposition of Responses to Rest of World GDP Shocks (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07182.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp07182 - Decomposition of Responses to Rest of World GDP Shocks (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07182.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/foreign-entanglements-estimating-the-source-and-size-of-spillovers-across-industrial-21192_