Have Business Cycles Become More Synchronous After NAFTA?

Abstract

Trade agreements do not necessitate business cycle comovement. Focusing on NAFTA, we investigate whether business cycles in Canada, Mexico, and the US have become more synchronous after the landmark trade agreement came into effect in 1994. To this end, using the newly-developed Hamilton filter, we decompose the real GDPs of the three countries to derive their business cycle components; then, we conduct time-difference analyses, which illuminate correlations at different time intervals, to study business cycle synchronization. We find that business cycles in Mexico and the US have become positively correlated after NAFTA—they were weakly and negatively correlated during the pre-NAFTA period. Contrastingly, correlations amongst the US and Canadian business cycles have weakened during the post-NAFTA period; nevertheless, these two countries' business cycles continue to be tightly and positively correlated. The oft-used Hodrick-Prescott filter is utilized to confirm the robustness of the results—the two filters lead to similar conclusions.

Cálculo de los Índices de Complejidad en México: Propuesta para una estimación más periódica y robusta

“…Esto ocurrió por los vínculos por el lado de la demanda entre estos dos países; pero más importante, consolidó vínculos por el lado de la oferta, al incentivar esquemas de producción compartida, derivado del surgimiento de un sustancial comercio intraindustrial. Vatsa (2021) analiza el efecto del TLCAN sobre los ciclos económicos de Canadá, México y los Estados Unidos. Encuentra que los ciclos entre México y los Estados Unidos estaban mínima y negativamente correlacionados antes del TLCAN, pero a partir de 1994 sus ciclos se sincronizan.…”