Currency Area and Non-synchronized Business Cycles between the US and Puerto Rico
AbstractFrankel and Rose (1997, 1998) state that greater intensity of trading leads to more highly correlated business cycles across countries. Since 2005 Puerto Rico, which belongs to the US currency area, has suffered from economic stagnation. This raises the issue of whether currency areas lead to synchronized business cycles or not. Following Vahid and Engle (1997), we use a test of codependence to examine the short-run co-movements in outputs and prices between the US and Puerto Rico. The outcomes indicate that both economies share a common non-synchronized business cycle. The response from Puerto Rico to temporary US shocks occurs at a lag of one quarter. In addition, Puerto Rican prices respond to temporary shocks to US prices with a lag of two quarters. Furthermore, the forecast error variance decomposition shows that the Puerto Rican economy is highly dependent on the US economy. All evidence suggests that currency areas do not lead to synchronized business cycles. However, even though Puerto Rico has a non-synchronized common cycle with the US, the results appear to be that the current economic struggle in Puerto Rico is a long-term one, instead of a short-term one.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 33 (2013)
Issue (Month): 3 ()
Contact details of provider:
Time Series Models; Business Cycles; International monetary arrangements; and Institutions.;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Calderon, Cesar & Chong, Alberto & Stein, Ernesto, 2007.
"Trade intensity and business cycle synchronization: Are developing countries any different?,"
Journal of International Economics,
Elsevier, vol. 71(1), pages 2-21, March.
- César Calderón & Alberto Chong & Ernesto H. Stein, 2003. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries any Different?," Research Department Publications 4315, Inter-American Development Bank, Research Department.
- César Calderón & Alberto Chong & Ernesto Stein, 2002. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries Any Different?," Working Papers Central Bank of Chile 195, Central Bank of Chile.
- Michael Artis & Toshihiro Okubo, 2011.
"Does International Trade Really Lead To Business Cycle Synchronization?—A Panel Data Approach,"
University of Manchester, vol. 79(2), pages 318-332, 03.
- Michael Artis & Toshihiro Okubo, 2011. "Does International Trade Really Lead to Business Cycle Synchronization?-A panel data approach," Discussion Paper Series DP2011-05, Research Institute for Economics & Business Administration, Kobe University.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- De Pace, Pierangelo, 2013. "Currency Union, Free-Trade Areas, And Business Cycle Synchronization," Macroeconomic Dynamics, Cambridge University Press, vol. 17(03), pages 646-680, April.
- Beine, Michel & Hecq, Alain, 1998.
"Codependence and Convergence in the EC Economies,"
Journal of Policy Modeling,
Elsevier, vol. 20(4), pages 403-426, August.
- Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
- Kwanho Shin & Yunjong Wang, 2003.
"Trade Integration and Business Cycle Synchronization in East Asia,"
Asian Economic Papers,
MIT Press, vol. 2(3), pages 1-20.
- Kwanho Shin & Yunjong Wang, 2003. "Trade Integration and Business Cycle Synchronization in East Asia," ISER Discussion Paper 0574, Institute of Social and Economic Research, Osaka University.
- Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 245-253, August.
- Jeffrey A. Frankel & Andrew K. Rose, 1996.
"The Endogeneity of the Optimum Currency Area Criteria,"
NBER Working Papers
5700, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
- Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
- Engle, Robert F & Kozicki, Sharon, 1993.
"Testing for Common Features,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 11(4), pages 369-80, October.
- Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
- Inklaar, Robert & Jong-A-Pin, Richard & de Haan, Jakob, 2008.
"Trade and business cycle synchronization in OECD countries--A re-examination,"
European Economic Review,
Elsevier, vol. 52(4), pages 646-666, May.
- Robert Inklaar & Richard Jong-A-Pin & Jakob de Haan, 2005. "Trade and Business Cycle Synchronization in OECD Countries - a Re-examination," CESifo Working Paper Series 1546, CESifo Group Munich.
- Aldo A. Arnaudo & Alejandro D. Jacobo, 1997. "Macroeconomic homogeneity within Mercosur: An overview," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 12(1), pages 37-51.
- Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
- Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, vol. 80(2), pages 199-221, October.
- Gouriéroux, Christian & Peaucelle, Irina, 1992. "Séries codépendantes : application à l’hypothèse de parité du pouvoir d’achat," L'Actualité Economique, Société Canadienne de Science Economique, vol. 68(1), pages 283-304, mars et j.
- Robert F. Engle & João Victor Issler, 1993. "Common trends and common cycles in Latin America," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 47(2), pages 149-176, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.