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What Ties Us Together? Explaining Synchronized GDP Volatility

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Abstract

Amid heightened policy uncertainty, understanding the drivers of global macroeconomic instability becomes increasingly critical. This paper studies the determinants of output volatility synchronization using data for 42 economies worldwide. We construct a bilateral time-varying index of volatility synchronization and infer its drivers using Bayesian model averaging, complemented by weighted average least squares (WALS) and least absolute shrinkage and selection operator (LASSO) regression. We find that differences in total factor productivity, interest rate, and fiscal policy volatility robustly explain cross-country synchronization, with nuances between developed and developing countries. Overall, the results highlight the role of technological divergence and macroeconomic policy uncertainty in shaping the international co-movement of output volatility.

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  • Lorenzo Ductor Gómez & Danilo Leiva-León & Javier Adrián López Artero, 2026. "What Ties Us Together? Explaining Synchronized GDP Volatility," Working Papers 26-10, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:103627
    DOI: 10.29412/res.wp.2026.10
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    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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