The common sources of business cycles in Trans-Pacific countries and the US? A comparison with NAFTA

Keywords

Bayesian estimation; dynamic stochastic general equilibrium; North American Free Trade Agreement; principal component analysis; Trans-Pacific

Abstract

This paper uses both a non-structural and a structural approach to investigate the drivers of the business cycles in the US and 15 Trans-Pacific (TP) countries. Our non-structural analysis, based on a principal component methodology, reveals the shares of variation in macroeconomic variables that are due to factors common to both the US and the TP region, and factors that are region-specific. We obtain similar measures by using a structural model (an estimated two-country dynamic stochastic general equilibrium model) that allows for common and correlated shocks across the two regions. The clear and common finding from our analyses is that common shocks explain a substantial amount of macroeconomic variation. Comparison with the NAFTA region, along this dimension, reveals that the US economy is more similar to the TP region (a wider region that also includes Mexico and Canada) than its two neighbours.

Publication Date

4-1-2019

Publication Title

World Economy

Volume

42

Issue

4

Number of Pages

1077-1109

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1111/twec.12742

Socpus ID

85058045456 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85058045456

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