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How Does Globalization Affect the Synchronization of Business Cycles?

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Author Info

  • Kose, M. Ayhan

    ()
    (International Monetary Fund)

  • Prasad, Eswar

    ()
    (Cornell University)

  • Terrones, Marco E.

    ()
    (International Monetary Fund)

Abstract

This paper examines the impact of rising trade and financial integration on international business cycle comovement among a large group of industrial and developing countries. The results provide at best limited support for the conventional wisdom that globalization has increased the degree of synchronization of business cycles. The evidence that trade and financial integration enhance global spillovers of macroeconomic fluctuations is mostly limited to industrial countries. One striking result is that, on average, cross-country consumption correlations have not increased in the 1990s, precisely when financial integration would have been expected to result in better risk-sharing opportunities, especially for developing countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 702.

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Length: 18 pages
Date of creation: Jan 2003
Date of revision:
Publication status: published in: American Economic Review, 2003, 93 (2), 57-62
Handle: RePEc:iza:izadps:dp702

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Related research

Keywords: international transmission of shocks; trade and financial integration; macroeconomic fluctuations; cross-country comovement of output and consumption;

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  1. Glenn Otto & Graham Voss & Luke Willard, 2001. "Understanding OECD Output Correlations," RBA Research Discussion Papers rdp2001-05, Reserve Bank of Australia.
  2. César Calderón & Alberto Chong & Ernesto Stein, 2002. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries Any Different?," Working Papers Central Bank of Chile 195, Central Bank of Chile.
  3. Lumsdaine, Robin L. & Prasad, Eswar, 2002. "Identifying the Common Component of International Economic Fluctuations: A New Approach," IZA Discussion Papers 487, Institute for the Study of Labor (IZA).
  4. Heathcote, Jonathan & Perri, Fabrizio, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-05, Duke University, Department of Economics.
  5. 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.
  6. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
  7. Jean Imbs, 2003. "Trade, Finance, Specialization, and Synchronization," IMF Working Papers 03/81, International Monetary Fund.
  8. Robin L. Lumsdaine & Eswar Prasad, 1999. "Identifying the Common Component in International Economic Fluctuations," IMF Working Papers 99/154, International Monetary Fund.
  9. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  10. M. Ayhan Kose & Kei-Mu Yi, 2002. "The trade comovement problem in international macroeconomics," Staff Reports 155, Federal Reserve Bank of New York.
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