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If the Unites States sneezes, does the world need paracetamol?

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  • M. J. Herrerias

    ()
    (Université de la Méditerranée Aix Marseille II, GREQAM)

  • Javier Ordoñez

    ()
    (Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

There is an old saying that states that “If the United States sneezes, the rest of the world catches a cold”. Against this background, it is argued that some countries, especifically China, can “decouple” from the US economy and sustain strong growth in the face of a US slowdown. In this paper we analyze the extent to which the US economy affects international business fluctuations across countries. A multivariate nonlinear LSTAR model is estimated for the GDP cyclical component of China, France, Germany, the UK and the USA. This nonlinear framework allows the business cycles asymmetries to be captured properly in order to identify the synchronization behavior across countries. Our results suggest that there is a relevant influence from the US cycle, since it acts as a source of international business cycle synchronization. However, spillovers from US cycle fluctuations to China are rather modest.

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Bibliographic Info

Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2011/03.

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Length: 42 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:jau:wpaper:2011/03

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Keywords: Business Cycle; nonlinearities; synchronization; decoupling;

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