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Trend and cyclical decoupling: new estimates based on spectral causality tests and wavelet correlations

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  • Dilip Nachane
  • Amlendu Kumar Dubey

Abstract

The issue of decoupling of emerging market economies (EMEs) (especially in the Asian region) from the developments in advanced economies has become a subject of lively debate in recent years. Basically, decoupling seems to comprise three sub-hypotheses: (i) growth spillovers from advanced countries to EMEs decreasing progressively in importance, (ii) business cycles in EMEs becoming less synchronized with those of the advanced world and (iii) strengthening of growth spillovers and cyclical synchronization among the EMEs as a group. The received literature fails to distinguish adequately between the trend and cyclical aspects of the decoupling relationship. We resort to two frequency domain methods (nonstationary spectral causality testing and wavelet correlations), which seem to offer a neat separation of trend and cyclical decoupling. Based on a sample of seven EMEs from the Asian region (including the two large EMEs -- China and India), we uncover strong evidence favouring both trend and cyclical decoupling .

Suggested Citation

  • Dilip Nachane & Amlendu Kumar Dubey, 2013. "Trend and cyclical decoupling: new estimates based on spectral causality tests and wavelet correlations," Applied Economics, Taylor & Francis Journals, vol. 45(31), pages 4419-4428, November.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:31:p:4419-4428
    DOI: 10.1080/00036846.2013.788781
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    References listed on IDEAS

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    1. Milan Brahmbhatt & Luiz Pereira Da Silva, 2009. "The Global Financial Crisis : Comparisons with the Great Depression and Scenarios for Recovery," World Bank Publications - Reports 11110, The World Bank Group.
    2. Shruthi Jayaram, 2009. "Examining the Decoupling Hypothesis for India," Working Papers id:2119, eSocialSciences.
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    Cited by:

    1. Yoshito Funashima, 2018. "Macroeconomic policy coordination between Japanese central and local governments," Empirical Economics, Springer, vol. 54(4), pages 1631-1651, June.
    2. Dilip Nachane & Amlendu Dubey, 2018. "India in the globalized economy : Growth spillovers & business cycle synchronization," International Economics and Economic Policy, Springer, vol. 15(1), pages 89-115, January.
    3. Dilip M. Nachane & Amlendu Dubey, 2019. "The Spectral envelope: An Application to the decoupling problem in economics," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-022, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. D. M. Nachane, 2018. "Time-varying spectral analysis: theory and applications," Indian Economic Review, Springer, vol. 53(1), pages 3-27, December.
    5. Dilip M. Nachane & Amlendu Dubey, 2021. "The Spectral Envelope: An Application to the Decoupling Problem in Economics," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 287-308, December.
    6. Vácha, Lukáš & Šmolík, Filip & Baxa, Jaromír, 2019. "Comovement and disintegration of EU sovereign bond markets during the crisis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 541-556.

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