^*Tamim Bayoumi is an assistant director with the IMF's Western Hemisphere Department, and Andrew Swiston is a research assistant with that department. The authors gratefully acknowledge invaluable contributions from Sam Ouliaris and Thomas Helbling. Useful comments were also received from Petya Brooks, Trish Pollard, Nathan Sheets, Jeromin Zettelmeyer, participants in a seminar with U.S. government officials, participants in a Western Hemisphere Department seminar, and participants in an IMF seminar on the Macroeconomic and International Implications of Financial Market Innovation.

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.