Jump to content
Washington DC Message Boards

How the U.S. Economy affects the World


Recommended Posts

The is worth the read.


The US economy is often considered to play a pivotal role in global growth. Such a view has persisted despite the falling contribution of the US economy to global growth (from almost 30% in 1950 to around 20% at present). In this paper, we analyse the veracity of this conjecture and consider the implications of cyclical developments in the US economy on the rest of the world. Overall we find that while US economic developments would indeed affect the rest of the world, developments in most countries and regions remain primarily affected by idiosyncratic shocks as well as by global factors, which do not originate from a single country.


In this paper, we have analysed the implications of a slowdown in the US economy on the world excluding the US. Our main fndings are:


(i) The US business cycle leads that of the other regions, except in the case of the Asian region whose business cycle has been moving independently.


(ii) For all regions, except emerging Asia, linkages with the US appeared stronger than suggested by pure bilateral trade channels. In more detail, for the euro area it is estimated that a 1 pp of GDP positive US demand shock would increase euro area GDP by slightly over 0.25 pp while based on bilateral trade relations it would raise euro area GDP only by 0.1 pp.


(iii) In terms of timing, for all regions, a negative shock to the US economy has been transmitting faster than a positive one, with a high US growth phase taking between 2 to 10 quarters and a low growth phase between 1 and 3 quarters to spillover.


(iv) Finally, looking at the factors affecting regional developments, common and country/region specifc shocks appeared to have played a larger role in determining GDP

fluctuations than spillovers do. This finding would suggest that although a downturn in the US would indeed negatively affect the world excluding the US, country specific and global factors continue to dominate the outlook.



Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Create New...