Multiple Determinants of Business Cycle Synchronization

57 Pages Posted: 19 Oct 2007 Last revised: 27 Nov 2012

See all articles by Çiğdem Akın

Çiğdem Akın

The Johns Hopkins University School of Advanced International Studies (SAIS) ; Johns Hopkins University SAIS International Economics Program; Johns Hopkins University SAIS International Economics Program

Date Written: October 1, 2012

Abstract

This study looks at the major economic linkages explaining real GDP correlations for 51 countries including 27 emerging markets for the 1970-2008 period. The GMM-IV and 3SLS simultaneous equation models show that trade integration, especially in the form of intra-industry trade, and similarity in economic structures are the most important determinants of output correlations. On average, global financial integration has no significant effect on output synchronization. However, for developed country pairs and developed and emerging market pairs, financial integration lowers business cycle synchronization, whereas for emerging markets, financial integration increases synchronization. There are strong indirect effects from financial openness to trade integration and structural convergence. In addition, FTA membership, trade partner diversification, differences in fiscal spending, and stability of bilateral exchange rates increase output correlations. Similar oil import dependencies increase synchronization primarily among developed country pairs.

Keywords: synchronization of business cycles, economic integration, international propagation of business cycle fluctuations, trade linkages, financial linkages, economic structure.

JEL Classification: E32, F15, F36, F42

Suggested Citation

Akın, Çiğdem and Akın, Çiğdem and Akın, Çiğdem, Multiple Determinants of Business Cycle Synchronization (October 1, 2012). Available at SSRN: https://ssrn.com/abstract=1022648 or http://dx.doi.org/10.2139/ssrn.1022648

Çiğdem Akın (Contact Author)

The Johns Hopkins University School of Advanced International Studies (SAIS) ( email )

1717 Massachusetts Avenue, NW BOB 718
Washington, DC 20036
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202 6637718 (Fax)

Johns Hopkins University SAIS International Economics Program ( email )

1717 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States
202 5317509 (Phone)
202 6637718 (Fax)

Johns Hopkins University SAIS International Economics Program ( email )

1717 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States
202 5317509 (Phone)
202 6637718 (Fax)

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