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Capital mobility and the synchronization of business cycles: Evidence from the European Union

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  • Krzysztof Beck

Abstract

Business cycle synchronization (BCS) is crucial for effective common monetary policy in the Eurozone. However, the impact of capital market integration on BCS is ambiguous in the literature. In this paper, we quantify the different channels through which capital mobility affects BCS, considering dynamic panel framework accounting for model uncertainty, reverse causality, and contagion. Four different channels are examined: exuberance of business cycles through short‐run flows, risk‐sharing‐induced specialization, international value chain integration resulting from foreign direct investment, and contagion. The results show that the overall impact of capital mobility on BCS is positive in the EU.

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  • Krzysztof Beck, 2021. "Capital mobility and the synchronization of business cycles: Evidence from the European Union," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1065-1079, September.
    • Handle: RePEc:bla:reviec:v:29:y:2021:i:4:p:1065-1079
    DOI: 10.1111/roie.12536
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    2. Nestor Azcona, 2022. "Trade and business cycle synchronization: The role of common trade partners," International Economics, CEPII research center, issue 170, pages 190-201.
    3. Mao Takongmo, Charles-O. & Touré, Adam, 2023. "Trade openness and connectedness of national productions: Do financial openness, economic specialization, and the size of the country matter?," Economic Modelling, Elsevier, vol. 125(C).
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    6. Krzysztof Beck, 2022. "Macroeconomic policy coordination and the European business cycle: Accounting for model uncertainty and reverse causality," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1095-1114, October.

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