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Volatility and Comovement in a Globalized World Economy

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  • M. Ayhan Kose
  • Marco Terrones
  • Eswar Prasad

Abstract

This paper analyzes the evolution of volatility and cross-country comovement in output, consumption, and investment fluctuations using two distinct datasets. The results suggest that there has been a significant decline in the volatility of business cycle fluctuations and a slight increase in the degree of cyclical comovement among industrialized countries over time. However, for emerging market economies, financial globalization appears to have been associated, on average, with an increase in macroeconomic volatility as well as declines in the degree of comovement of output and consumption growth with their corresponding world aggregates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/246.

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Length: 38
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/246

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References

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  1. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1216-1239, September.
  2. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(2), pages 251-85, May.
  3. Clark, Todd E. & van Wincoop, Eric, 2001. "Borders and business cycles," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 59-85, October.
  4. Jean Imbs, 2004. "Trade, Finance, Specialization, and Synchronization," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 723-734, August.
  5. Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989. "International Business Cycles," Papers, Pennsylvania State - Department of Economics 7-89-4, Pennsylvania State - Department of Economics.
  6. Gerlach, H M Stefan, 1988. "World Business Cycles under Fixed and Flexible Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(4), pages 621-32, November.
  7. Baxter, Marianne, 1991. "Business cycles, stylized facts, and the exchange rate regime: evidence from the United States," Journal of International Money and Finance, Elsevier, Elsevier, vol. 10(1), pages 71-88, March.
  8. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
  9. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1473, C.E.P.R. Discussion Papers.
  10. Enrique G. Mendoza, 1992. "Robustness of Macroeconomic Indicators of Capital Mobility," IMF Working Papers 92/111, International Monetary Fund.
  11. Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4119, C.E.P.R. Discussion Papers.
  12. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2000. "Risk sharing and industrial specialization ; regional and international evidence," Research Working Paper, Federal Reserve Bank of Kansas City RWP 00-06, Federal Reserve Bank of Kansas City.
  13. Margaret M. McConnell & Patricia C. Mosser & Gabriel Perez Quiros, 1999. "A decomposition of the increased stability of GDP growth," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 5(Aug).
  14. Robin L. Lumsdaine & Eswar Prasad, 1999. "Identifying the Common Component in International Economic Fluctuations," IMF Working Papers 99/154, International Monetary Fund.
  15. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  16. Brian M. Doyle & Jon Faust, 2003. "Breaks in the variability and co-movement of G-7 economic growth," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 786, Board of Governors of the Federal Reserve System (U.S.).
  17. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports, Federal Reserve Bank of New York 96, Federal Reserve Bank of New York.
  18. Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
  19. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers 220, International Monetary Fund.
  20. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 371-375, May.
  21. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, Elsevier, vol. 56(2), pages 299-327, March.
  22. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
  23. Michael D. Bordo & Thomas Helbling, 2003. "Have National Business Cycles Become More Synchronized?," NBER Working Papers 10130, National Bureau of Economic Research, Inc.
  24. Sunghyun Henry Kim & M. Ayhan Kose & Michael G. Plummer, 2003. "Dynamics of Business Cycles in Asia: Differences and Similarities," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 462-477, 08.
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Citations

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Cited by:
  1. Eickmeier, Sandra, 2004. "Business Cycle Transmission from the US to Germany: a Structural Factor Approach," Discussion Paper Series 1: Economic Studies 2004,12, Deutsche Bundesbank, Research Centre.
  2. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, Springer, vol. 41(1), pages 43-56, August.
  3. Linda Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports, Federal Reserve Bank of New York 183, Federal Reserve Bank of New York.
  4. Montalbano, Pierluigi & Federici, Alessandro & Triulzi, Umberto & Pietrobelli, Carlo, 2005. "Trade Openness and Vulnerability in Central and Eastern Europe," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/43, World Institute for Development Economic Research (UNU-WIDER).
  5. Eickmeier, Sandra, 2005. "Common stationary and non-stationary factors in the euro area analyzed in a large-scale factor model," Discussion Paper Series 1: Economic Studies 2005,02, Deutsche Bundesbank, Research Centre.
  6. Fernando A Broner & Jaume Ventura, 2006. "Globalization and Risk Sharing," Working Papers 307, Barcelona Graduate School of Economics.
  7. Moore, Winston, 2010. "Managing the Process of Removing Capital Controls: What Does the Literature Suggest?," MPRA Paper 21584, University Library of Munich, Germany.
  8. Linda Goldberg, 2004. "Financial-Sector FDI and Host Countries: New and Old Lessons," NBER Working Papers 10441, National Bureau of Economic Research, Inc.
  9. Yetman, James, 2011. "Exporting recessions: International links and the business cycle," Economics Letters, Elsevier, Elsevier, vol. 110(1), pages 12-14, January.
  10. Jaime Espinosa-Bowen & Nadeem Ilahi & Fahad Alturki, 2009. "How Russia Affects the Neighborhood," IMF Working Papers 09/277, International Monetary Fund.
  11. Beja, Edsel Jr., 2009. "Things are different when you open up: Economic openness, domestic economy, and income," MPRA Paper 16552, University Library of Munich, Germany, revised 01 Aug 2009.
  12. Lucio Vinhas de Souza, 2004. "Financial Liberalization and Business Cycles:The Experience of Future EU Member States in the Baltics and Central Eastern Europe," Money Macro and Finance (MMF) Research Group Conference 2004, Money Macro and Finance Research Group 5, Money Macro and Finance Research Group.
  13. Fabio Rumler & Johann Scharler, 2011. "Labor Market Institutions And Macroeconomic Volatility In A Panel Of Oecd Countries," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 58(3), pages 396-413, 07.
  14. Stan du Plessis, 2006. "Business Cycles in Emerging market Economies: A New View of the Stylised Facts," Working Papers 02/2006, Stellenbosch University, Department of Economics.
  15. Nadeem Ilahi & Riham Shendy, 2008. "Do the Gulf Oil-Producing Countries Influence Regional Growth? T+L3886he Impact of Financial and Remittance Flows," IMF Working Papers 08/167, International Monetary Fund.

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