International transmission of the business cycle in a multi-sector model (original) (raw)
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International Transmission of the Business Cycle in a Multi-Sectoral Model
1998
We estimate determinants of dynamic correlations of output comovement of OECD countries between 1990 and 2008. We show that trade intensity, degree of financial integration and specialization pattern have significantly different effects on comovements at different frequencies. This can bias the results using aggregate data or statistical filters. For example, financial integration is showed to have the highest positive effect for middle business frequencies, while it is insignificant for short-term frequencies.
International transmission of business cycles: Evidence from dynamic correlations
Economics Letters, 2012
We estimate determinants of dynamic correlations of output comovement of OECD countries between 1990 and 2008. We show that trade intensity, degree of financial integration and specialization pattern have significantly different effects on comovements at different frequencies. This can bias the results using aggregate data or statistical filters. For example, financial integration is showed to have the highest positive effect for middle business frequencies, while it is insignificant for short-term frequencies.
Regional and Interregional Business Cycle Comovement in Europe, Asia, and North America
2020
This study examines Regional vs. Interregional Business cycle comovement in Europe, Asia, and North America from 1965 to 2016. Our results show that regional business cycles are relatively more synchronous than inter-regional business cycles particularly in North America and Europe. Thus, we empirically studied the determinants of regional output comovement. We employ Panel Granger causality techniques to examine the causal relationships between output correlation, trade integration, and financial linkages. First, for Europe, our results show that there is evidence of a bidirectional causal relationship between output comovement and trade integration in the short run. Also, both bilateral trade and bilateral Foreign Direct Investment (FDI) jointly Granger cause real GDP correlation (unidirectional causality) in the long run. Second, for Asia, we found a bidirectional causal relationship between output comovement and both bilateral trade and bilateral FDI. Finally, for North America,...
Sectors and the OECD Business Cycle
2000
This paper investigates empirically the interactions between trade intensity, economic structure and business cycles synchronization. I implement an original methodology in which trade and economic structure are allowed to affect synchronization both directly and indirectly, and their putative endogeneity is controlled for through appropriate instrumentation. I Þnd sectoral structure to have a robust and economically signiÞcant impact on cycle synchronization; the variable is found to be particularly important within EMU member countries, thus going some way in explaining why outsider countries like the UK or Scandinavian economies tend to display persistently idiosyncratic business cycles relative to Þrst-stage members. JEL ClassiÞcation Numbers: F41, E32.
Common Trade Exposure and Business Cycle Comovement
International Finance Discussion Paper, 2020
A large empirical literature has shown that countries that trade more with each other have more correlated business cycles. We show that previous estimates of this relationship are biased upward because they ignore common trade exposure to other countries. When we account for common trade exposure to foreign business cycles, we find that (1) the effect of bilateral trade on business cycle comovement falls by roughly 25 percent and (2) common exposure is a significant driver of business cycle comovement. A standard international real business cycle model is qualitatively consistent with these facts but fails to reproduce their magnitudes. Past studies have used models that allow for productivity shock transmission through trade to strengthen the relationship between trade and comovement. We find that productivity shock transmission increases business cycle comovement largely because of a country-pair's common trade exposure to other countries rather than because of bilateral trad...
International Linkages and the Changing Nature of International Business Cycles
2019
We quantify the effects of changes in international input-output linkages on the nature of business cycles. We build a multi-sector multi-country international business cycle model that matches the input-output structure within and across countries. We find that, in our 23 countries sample with manufacturing and non-manufacturing sectors, changes in the international input-output linkages between 1970 and 2007 causes a 15% drop in output volatility in a median country, but the effects are heterogeneous across countries. Changing international linkages tend to stabilize output in most countries, while leading to a higher risk of a global recession.
Applied Economics, 2013
We exploit a dataset on financial integration within Europe to answer a novel question in the international RBC literature. Does financial integration within Europe matter for the international transmission of business cycles between the United States and Europe? We find that it does, and that as European countries become more financially integrated among themselves, European business cycles start to "decouple" from those in the United States. We show that this is true for three macro indicators of economic activity: GDP, consumption and investment, and for five alternative measures of the degree of financial integration. We also show that the effect of trade linkages becomes insignificant once financial factors are accounted for. Our work has interesting policy implications since it unveils the importance of further integration in the European Union to slow down the transmission of aggregate shocks among industrialized nations.
World, country, and sector factors in international business cycles
Journal of Economic Dynamics and Control, 2013
Do sector-specific factors common to all countries play an important role in explaining business cycle co-movement? We address this question by analyzing international comovements of value added (VA) growth in a multi-sector dynamic factor model. The model contains a world factor, country-specific factors, sector-specific factors, and idiosyncratic components. We estimate the model using Bayesian methods for 30 disaggregated sectors in the G7 economies for the 1974-2004 period. Our findings show that, although there is a substantial role for sector-specific factors, fluctuations are dominated by country-factors. The world factor appears to play a minimal role because, when using aggregate data, the world factor captures both the factor common to all countries and industries and the factor common to the same industry across countries. We then examine how these factors evolved as globalization deepened over the past two decades. Our results suggest that business cycles at a disaggregate level have not become more synchronized internationally. This is mainly driven by a substantial fall in the volatility of world shocks during the globalization period, rather than a lower sensitivity of sectoral growth to world factors. Our results also reveal that world factors appear to be more important for industries with a higher level of international vertical integration.