Dynamics of Global Business Cycles Interdependence

Abstract

In this paper, we rely on regime-switching models to provide a comprehensive analysis of the time-varying interdependence among the economic cycles of the major world economies during the post-Great moderation period. We document a structural increase in the global business cycles interdependence occurred in the early 2000s. A clustering analysis reveals that such increase is mainly attributed to the emerging market economies, since their business cycles became more synchronized with the rest of the world around that time. Moreover, we find that the break in global interdependence can be explained by decreasing differences in sectoral composition among countries, specifically in the agricultural component.