Borders and Business Cycles

FRB of Kansas City Working Paper No. 99-07

FRB of New York Staff Report No. 91

39 Pages Posted: 27 Nov 1999

See all articles by Todd E. Clark

Todd E. Clark

Federal Reserve Bank of Cleveland

Eric van Wincoop

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1999

Abstract

We document that business cycles of U.S. Census regions are substantially more synchronized than those of European Union countries, both over the past four decades and the past two decades. Data from regions within the four largest European countries confirm the presence of a European border effect—within-country correlations are substantially larger than cross-country correlations. These results continue to hold after controlling for exogenous factors such as distance and size. We consider the role of four factors that have received a lot of attention in the debate about EMU: sectoral specialization, the level of trade, monetary policy and fiscal policy. We find that the lower level of trade between European countries, and to a lesser extent the higher degree of sectoral specialization, can explain most of the observed border effect.

JEL Classification: F41

Suggested Citation

Clark, Todd E. and van Wincoop, Eric, Borders and Business Cycles (September 1999). FRB of Kansas City Working Paper No. 99-07, FRB of New York Staff Report No. 91, Available at SSRN: https://ssrn.com/abstract=185429 or http://dx.doi.org/10.2139/ssrn.185429

Todd E. Clark (Contact Author)

Federal Reserve Bank of Cleveland ( email )

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Eric Van Wincoop

University of Virginia - Department of Economics ( email )

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