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Trade and Business-Cycle Comovement: Evidence from the EU

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  • Luigi Bocola

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    (Università degli Studi di Torino)

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    Abstract

    This paper is an empirical study of the determinants of business-cycle comovement. Using a panel of European countries (1972-2004) it is found that bilateral trade intensity is a robust determinant of real comovement in Europe, this confirming the seminal study by Frankel and Rose (1998). It is also found that convergence in macroeconomic policies (especially fiscal policies) is associated to high degree of intra-european business-cycle correlation. Moreover, having controlled for policy convergence, the effect of bilateral trade on business cycle comovement weakens on average by a factor of 36%-33% with respect to that estimated according to Frankel and Rose’s econometric specification, this suggesting the potential endogeneity of the set of instrumental variables adopted by the two authors (Gruben, Koo and Millis, 2002).

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    Bibliographic Info

    Article provided by SIPI Spa in its journal Rivista di Politica Economica.

    Volume (Year): 96 (2006)
    Issue (Month): 6 (November-December)
    Pages: 25-62

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    Handle: RePEc:rpo:ripoec:v:96:y:2006:i:6:p:25-62

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    1. Zsolt Darvas & Andrew K. Rose & Gyorgy Szapary, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 261-298 National Bureau of Economic Research, Inc.
    2. Marianne Baxter & Michael Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
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