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Global business cycles: convergence or decoupling?

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Author Info
Kose, M. Ayhan
Otrok, Christopher M.
Prasad, Eswar S.

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Abstract

This paper analyzes the evolution of the degree of global cyclical interdependence over the period 1960-2005. We categorize the 106 countries in our sample into three groups?industrial countries, emerging markets, and other developing economies. Using a dynamic factor model, we then decompose macroeconomic fluctuations in key macroeconomic aggregates?output, consumption, and investment?into different factors. These are: (i) a global factor, which picks up fluctuations that are common across all variables and countries; (ii) three group-specific factors, which capture fluctuations that are common to all variables and all countries within each group of countries; (iii) country factors, which are common across all aggregates in a given country; and (iv) idiosyncratic factors specific to each time series. Our main result is that, during the period of globalization (1985-2005), there has been some convergence of business cycle fluctuations among the group of industrial economies and among the group of emerging market economies. Surprisingly, there has been a concomitant decline in the relative importance of the global factor. In other words, there is evidence of business cycle convergence within each of these two groups of countries but divergence (or decoupling) between them.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,17.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp1:7557

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Related research
Keywords: Globalization; Business cycles; Macroeconomic fluctuations; Convergence; Decoupling;

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Find related papers by JEL classification:
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Melisso Boschi & Alessandro Girardi, 2008. "The Contribution Of Domestic, Regional And International Factors To Latin America'S Business Cycle," CAMA Working Papers 2008-33, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  2. M. Ayhan Kose & Stijn Claessens & Marco Terrones, 2008. "What Happens During Recessions, Crunches, and Busts?," IMF Working Papers 08/274, International Monetary Fund. [Downloadable!]
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  3. Ansgar Belke & Andreas Rees, 2009. "We analyze the importance of global shocks for the global economy and national policy makers. More specifically, we investigate whether monetary policy has become less effective in the wake of financi," Ruhr Economic Papers 0135, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  4. Sebnem Kalemli-Ozcan & Elias Papaioannou & José Luis Peydró, 2009. "Financial Integration and Business Cycle Synchronization," NBER Working Papers 14887, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró-Alcalde, José Luis, 2009. "Financial Integration and Business Cycle Synchronization," CEPR Discussion Papers 7292, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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