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Determinants of business cycle comovement: a robust analysis

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  • Marianne Baxter
  • Michael Kouparitsas

Abstract

This paper investigates the determinants of business cycle comovement between countries. Our dataset includes over 100 countries, both developed and developing. We search for variables that are “robust” in explaining comovement, using the approach of Leamer (1983). Variables considered are (i) bilateral trade between countries; (ii) total trade in each country; (iii) sectoral structure; (iv) similarity in export and import baskets; (v) factor endowments; and (vi) gravity variables. We find that bilateral trade is robust. However, two variables that the literature has argued are important for business cycles - industrial structure and currency unions - are found not to be robust.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-04-14.

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Date of creation: 2004
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Handle: RePEc:fip:fedhwp:wp-04-14

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Keywords: Business cycles ; Trade;

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References

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  1. William Easterly & Ross Levine, 2002. "It's Not Factor Accumulation: Stylized Facts and Growth Models," Working Papers Central Bank of Chile 164, Central Bank of Chile.
  2. Clark, Todd E. & van Wincoop, Eric, 2001. "Borders and business cycles," Journal of International Economics, Elsevier, vol. 55(1), pages 59-85, October.
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  4. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
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  13. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
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  23. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
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  26. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
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  29. Shea, John, 1996. "Comovement in cities," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 169-206, June.
  30. Marianne Baxter, 1991. "Fiscal policy, specialization, and trade in the two-sector model: the return of Ricardo?," Discussion Paper / Institute for Empirical Macroeconomics 56, Federal Reserve Bank of Minneapolis.
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