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Business Cycle Co-movement and Trade Intensity in the Euro Area: is there a Dynamic Link?

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  • Marcus Kappler

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    (ZEW Mannheim)

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    Abstract

    This paper extends the recent literature that exclusively looks at the static link between bilateral trade intensity and business cycle synchronisation. A cross section augmented VAR framework with an unobservered common factor structure is used in order to apply the concept of Granger causality to test for dynamic links between variables. I conclude that although countrieswith intensive trade linkages also tend to have more similar business cycles in the long-run, the trade channel does not help to explain much of the short-run variation of business cycle comovement in the euro area. The common factors have high predictive power for both business cycle co-movement and bilateral trade intensity. Thus, the paper provides evidence for the common shock view on business cycle synchronisation.

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    Bibliographic Info

    Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

    Volume (Year): 231 (2011)
    Issue (Month): 2 (April)
    Pages: 247-265

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    Handle: RePEc:jns:jbstat:v:231:y:2011:i:2:p:247-265

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    Related research

    Keywords: Business cycles; synchronisation; international trade; dynamic factor model;

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    Cited by:
    1. Claudia Busl & Marcus Kappler, 2013. "Does Foreign Direct Investment Synchronise Business Cycles? Results from a Panel Approach," WWWforEurope Working Papers series 23, WWWforEurope.
    2. João Rebelo Barbosa & Rui Henrique Alves, 2011. "The Euro Area Ten Years after Its Creation: (Divergent) Competitiveness and the Optimum Currency Area Theory," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 605-629, December.

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