Have National Business Cycles Become More Synchronized?

63 Pages Posted: 5 Dec 2003 Last revised: 7 Sep 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Thomas Helbling

International Monetary Fund (IMF) - Middle East and Central Asia Department

Date Written: December 2003

Abstract

In this paper, we document evidence on the synchronization of business cycles across 16 countries over the past century and a quarter, demarcated into four exchange rate regimes. We find using three different methodologies that there is a secular trend towards increased synchronization for much of the twentieth century and that it occurs across diverse exchange rate regimes. This finding is in marked contrast to much of the recent literature, which has focused primarily on the evidence for the past 20 or 30 years and which has produced mixed results. We then considered a number of possible explanations for the observed pattern of increased synchronization. We first ascertained the role of shocks demarcated into country-specific (idiosyncratic) and global (common). Our key finding here is that global (common) shocks are the dominant influence across all regimes. The increasing importance of global shocks we posit reflects the forces of globalization, especially the integration of goods and services through international trade and the integration of financial markets. Our evidence shows a modest role for increasing bilateral trade in explaining synchronization, with stronger evidence for regional integration in Europe and North America but the evidence for the role of financial integration proxied by the removal of capital controls is inconclusive.

Suggested Citation

Bordo, Michael D. and Helbling, Thomas, Have National Business Cycles Become More Synchronized? (December 2003). NBER Working Paper No. w10130. Available at SSRN: https://ssrn.com/abstract=476087

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas Helbling

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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