Real Implications of Financial Linkages Between Canada and the United States / Vladimir Klyuev.

Format:

Book

Government document

Author/Creator:

Klyuev, Vladimir.

Series:

IMF Working Papers; Working Paper ; No. 2008/023

IMF Working Papers

Language:

English

Subjects (All):

Canada--Foreign economic relations--United States.

Canada.

Canada--Economic conditions--Econometric models.

United States--Economic conditions--Econometric models.

United States.

Physical Description:

1 online resource (54 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2008.

Language Note:

English

Summary:

This paper documents the extent of financial linkages between Canada and the United States and explores the impact of changes in U.S. financial conditions on financial conditions and real economic activity in Canada. It shows that close to a quarter of financing by Canadian corporations is raised south of the border. Empirical analysis using structural vector autoregressions establishes that a tightening in U.S. financial conditions has significant implications for real activity in Canada. For example, a percentage point increase in the 3- month T-bill rate, other things being equal, leads to a decline of slightly more than one percentage point in Canada's real GDP growth after 3 quarters. That decline can be decomposed into three channels: the direct financial channel, where the slowdown is attributed to a rising cost of funds for Canadian companies raising capital in the United States; the indirect financial channel, where growth is hampered as financial conditions in Canada tighten in response to a tightening in the United States; and the trade channel, which goes through a slowing in the U.S. economy, and correspondently lower demand for Canadian exports. As would be expected from the high degree of reliance on U.S. financing, the direct financial channel proves dominant in the short term.

Contents:

Contents; I. Introduction; II. Financial linkages; III. Model; IV. Empirical analysis; V. Transmission of U.S. financial shocks to Canada; VI. Sensitivity analysis and extensions; VII. Conclusion; Figures; 1. Canadian corporate bonds: gross new issues; 2. Net issuance of foreign bonds by Canadian corporations; 3. Percentage of shares of Canadian companies held by U.S. residents; 4. Foreign loans to Canadian non-bank sector as percentage of bank loans to Canadian non-financial corporations; 5. Determinants of capital level; 6. Direct impact of tightening in U.S. financial conditions

7. Indirect impact of tightening in U.S. financial conditions8. Impulse response functions in the basic model. U.S. block; 9. Impulse response functions in the basic model. Canada block; 10. Impulse response functions in the basic model. Cross block; 11. Shares of forecast error variance of Canada's real GDP growth due to different shocks; 12. Decomposition of impulse response of Canada's real GDP growth to one percentage point increase in U.S. 3-month T-bill rate in baseline regression

13. Decomposition of impulse response of Canada's real GDP growth to one percentage point increase in U.S. real GDP growth; 14. Oil price included. U.S. block; 15. Oil price included. Canadian block; 16. Oil price included. Cross block; 17. Decomposition of impulse response of Canada's GDP growth to one percentage point increase in U.S. 3-month T-bill. Oil price is added to baseline regression; 18. Oil price and exchange rate included. Canadian block; 19. Oil price and exchange rate included. Cross block

20. Decomposition of impulse response of Canada's GDP growth to one percentage point increase in U.S. 3-month T-bill. Oil price and exchange rate are added to baseline21. Stock price included. U.S. block; 22. Stock price included. Canadian block; 23. Stock price included. Cross block; 24. Spreads on long-term corporate bonds added. Cross block; 25. FCI is used as a measure of financial conditions. U.S. block; 26. FCI is used as a measure of financial conditions. Canadian block; 27. FCI is used as a measure of financial conditions. Cross block

28. Decomposition of impulse response of Canada's real GDP growth to one unit increase in U.S. FCI29. Filtered date. U.S. block; 30. Filtered date. Canadian block; 31. Filtered date. Cross block; 32. Decomposition of impulse response of Canada's real GDP growth to one percentage point increase in U.S. 3-month T-bill rate. Filtered data; 33. Short sample. U.S. block; 34. Short sample. Canadian block; 35. Short sample. Cross. block; 36. Decomposition of impulse response of Canada's real GDP growth to one percentage point increase in U.S. 3-month T-bill rate in baseline regression; Appendix

Financial conditions indices

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on online resource; title from PDF cover (ebrary, viewed July 2, 2015).

ISBN:

9786613830418

9781462383054

146238305X

9781452744049

1452744041

9781283517966

1283517965

9781451913385

1451913389