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The Transmission of US Business Cycles to the Canadian Economy

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  • Koichi Yoshimine

Abstract

As the substantial share of the Canadian trade occurs with the United States, one would expect that the fluctuations in US macroeconomic aggregates are rapidly transmitted to the Canadian economy. Specifically, the transmission should occur through changes in the flow of goods and financial assets. However, the standard general equilibrium models fail to show such a relationship. In this paper, I consider a small open-economy model taking the fluctuations of US variables as given and explicitly incorporating the flows of intermediate goods and financial assets. The simulation results show that the model can reproduce the actual data reasonably well when the trade share of intermediate goods is properly calibrated and the flow of financial asset is absent. That is, transmission does occur through trade in goods but not through assets.

Suggested Citation

  • Koichi Yoshimine, 2010. "The Transmission of US Business Cycles to the Canadian Economy," International Economic Journal, Taylor & Francis Journals, vol. 24(2), pages 155-170.
    • Handle: RePEc:taf:intecj:v:24:y:2010:i:2:p:155-170
    DOI: 10.1080/10168737.2010.486886
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    References listed on IDEAS

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