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Business Cycle Synchronisation: Disentangling Trade and Financial Linkages

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  • Stéphane Dées

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  • Nico Zorell

Abstract

Drawing on a large cross-section of countries, this paper explores whether closer economic ties between countries foster business cycle synchronisation and disentangles the role of the various channels, including trade and financial linkages as well as the similarity in sectoral specialisation. Our results confirm that output comovement is higher for country pairs with closer trade linkages and similar patterns of sectoral specialisation. By contrast, it remains difficult to find a direct relationship between bilateral financial linkages and output correlation. However, our results suggest that financial integration spurs business cycle synchronisation indirectly by raising the similarity in sectoral specialisation. Notably, the main findings hold regardless of whether financial linkages are captured in terms of FDI or portfolio holdings. Copyright Springer Science+Business Media, LLC 2012

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 23 (2012)
Issue (Month): 4 (September)
Pages: 623-643

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Handle: RePEc:kap:openec:v:23:y:2012:i:4:p:623-643

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Web page: http://www.springerlink.com/link.asp?id=100323

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Keywords: International transmission of shocks; Financial integration; International business cycle; E32; F41; E44;

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Cited by:
  1. Degiannakis, Stavros & Duffy, David & Filis, George, 2013. "Time-varying Business Cycles Synchronisation in Europe," MPRA Paper 52925, University Library of Munich, Germany.
  2. Lance Kent, 2014. "Linkages, Transmission, and the Evolution of International Business Cycles," Working Papers 149, Department of Economics, College of William and Mary.
  3. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Has Integration Promoted Business Cycle Synchronization in the Enlarged EU?," FIW Working Paper series 075, FIW.
  4. N. Antonakakis & G. Tondl, 2014. "Does integration and economic policy coordination promote business cycle synchronization in the EU?," Empirica, Springer, vol. 41(3), pages 541-575, August.

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