Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia

34 Pages Posted: 28 Apr 2002

See all articles by Kristin J. Forbes

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Tilak Abeysinghe

National University of Singapore (NUS) - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: November 2001

Abstract

This paper develops a structural VAR model to measure how a shock to one country can affect the GDP of other countries. It uses trade linkages to estimate the multiplier effects of a shock as it is transmitted through other countries' output fluctuations. The paper introduces a new specification strategy that significantly reduces the number of unknowns and allows cross-country relationships to vary over time. Then it uses this model to examine the impact of shocks to 11 Asian countries, the U.S. and the rest of the OECD. The model produces reasonably good short-term forecasts. Impulse-response matrices suggest that these multiplier effects are large and significant and can transmit shocks in very different patterns than predicted from a bilateral-trade matrix. For example, due to these output-multiplier effects, a shock to one country can have a large impact on countries that are relatively minor bilateral trading partners.

JEL Classification: C32, C50

Suggested Citation

Forbes, Kristin J. and Abeysinghe, Tilak, Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia (November 2001). Available at SSRN: https://ssrn.com/abstract=298519 or http://dx.doi.org/10.2139/ssrn.298519

Kristin J. Forbes (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-416
Cambridge, MA 02142
United States
617-253-8996 (Phone)

HOME PAGE: http://web.mit.edu/kjforbes/www

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tilak Abeysinghe

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Republic of Singapore
(65) 775-2646 (Fax)

HOME PAGE: http://courses.nus.edu.sg/course/ecstabey/Tilak.ht

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
487
Abstract Views
2,930
rank
60,813
PlumX Metrics