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Trade, Finance, Specialization and Synchronization

Listed author(s):
  • Jean Imbs

    (Center for Economic Research - CEPR, London Business School - Aucune, Princeton University [Pinceton])

I investigate the determinants of business cycle synchronization across regions. The linkages between trade in goods, financial openness, specialization, and business cycle synchronization are evaluated in the context of a system of simultaneous equations. The main results are as follows. (i) Specialization patterns have a sizable effect on business cycles. Most of this effect is independent of trade or financial policy, but directly reflects differences in GDP per capita. (ii) A variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized, even though they also tend to be more specialized. (iii) The estimated role of trade is closer to that implied by existing models once intra-industry trade is held constant. The results obtain in a variety of data sets, measurement strategies, and specifications. They relate to a recent strand of international business cycle models with incomplete markets and transport costs and, on the empirical side, point to an important omission in the list of criteria defining an optimal currency area, namely, specialization patterns.

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Paper provided by HAL in its series Post-Print with number hal-00612588.

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Date of creation: Aug 2004
Publication status: Published in The Review of Economics and Statistics, 2004, 86 (3), pp.723-734
Handle: RePEc:hal:journl:hal-00612588
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00612588
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