What Happened to the East Asian Business Cycle?

I examine the dynamics of business cycle correlations within emerging East Asia, and draw comparisons with alternative regional samples. There is overwhelming evidence bilateral cycle correlations have significantly shifted upwards since the 1980's. In emerging East Asia, the shift corresponds to the late 1990's Asian crisis - but not elsewhere. A spike in business cycles synchronization is evident from 2008Q3. However, it is substantially more pronounced amongst developed countries than in emerging East Asia, or indeed Latin America. The ongoing crisis appears to affect East Asian economies in more differentiated ways than the rest of the developed world. The paper proposes a decomposition of the dynamics in cycle synchronization into changes in goods trade and in financial linkages. Interestingly, while the change in cycles synchronization corresponds to a fall in bilateral trade for emerging East Asia, it is associated with a fall in financial trade in the rest of the world.