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Trade and Business-Cycle Comovement: Evidence from the EU

Listed author(s):
  • Luigi Bocola

    ()

    (Università degli Studi di Torino)

This paper is an empirical study of the determinants of business-cycle comovement. Using a panel of European countries (1972-2004) it is found that bilateral trade intensity is a robust determinant of real comovement in Europe, this confirming the seminal study by Frankel and Rose (1998). It is also found that convergence in macroeconomic policies (especially fiscal policies) is associated to high degree of intra-european business-cycle correlation. Moreover, having controlled for policy convergence, the effect of bilateral trade on business cycle comovement weakens on average by a factor of 36%-33% with respect to that estimated according to Frankel and Rose’s econometric specification, this suggesting the potential endogeneity of the set of instrumental variables adopted by the two authors (Gruben, Koo and Millis, 2002).

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File URL: http://www.rivistapoliticaeconomica.it/2006/nov_dic/pdf/Bocola_eng.pdf
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Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 96 (2006)
Issue (Month): 6 (November-December)
Pages: 25-62

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Handle: RePEc:rpo:ripoec:v:96:y:2006:i:6:p:25-62
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  17. Buiter, Willem H. & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers.
  18. Bergman, Michael, 2004. "How Similar Are European Business Cycles?," Working Papers 2004:9, Lund University, Department of Economics.
  19. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
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