Abstract
AbstractThis paper studies how the Trans‐Pacific region affects theUSeconomy in terms of business cycle transmission. We use a large data set consisting of disaggregated sectoral industrial production indexes from selected countries in the region and employ a factor‐augmented vector autoregression (FAVAR) approach to analyse the transmission of shocks in different industries. We find that a positive output shock in the entire Trans‐Pacific region has positive effects on the majority ofUSmanufacturing sectors. We also find that sectoral shocks in five sectors of the Trans‐Pacific region have a large impact on the overallUSeconomy. Three of the five sectors displayed strong same‐sector responses relative to the overall response, suggesting that vertical production linkages might play a key role in the transmission of shocks. Our results highlight the importance of examining industrial sectors in studying the transmission of shocks in the Trans‐Pacific region.
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