| Abstract: | This paper develops a structural VAR model to measure how a shock to one country affects other countries’ GDP. It uses trade linkages to estimate the multiplier effects as a shock is transmitted through output fluctuations and introduces a new specification strategy that reduces the number of unknowns and allows cross‐country relationships to vary over time. This model is used to examine the impact of shocks to 11 Asian countries, the US, and the rest of the OECD. Impulse‐response matrices suggest that these multiplier effects are large and can transmit shocks in very different patterns than predicted from a bilateral‐trade matrix. |
