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Finance and Synchronization

Author

Listed:
  • Ambrogio Cesa-Bianchi

    (Bank of England - Bank of England, CFM - Centro de Fisica de Materiales - UPV/EHU - Universidad del Pais Vasco / Euskal Herriko Unibertsitatea [Espagne] - CSIC - Consejo Superior de Investigaciones Científicas [Spain])

  • Jean Imbs

    (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Jumana Saleheen

    (Bank of England - Bank of England)

Abstract

In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.

Suggested Citation

  • Ambrogio Cesa-Bianchi & Jean Imbs & Jumana Saleheen, 2019. "Finance and Synchronization," Post-Print halshs-01884379, HAL.
  • Handle: RePEc:hal:journl:halshs-01884379
    DOI: 10.1016/j.jinteco.2018.08.007
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01884379
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    Citations

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    Cited by:

    1. Mariarosaria Comunale, 2017. "Synchronicity of real and financial cycles and structural characteristics in EU countries," CEIS Research Paper 414, Tor Vergata University, CEIS, revised 25 Sep 2017.
    2. Michael A. Stemmer, 2017. "Revisiting Finance and Growth in Transition Economies - A Panel Causality Approach," Documents de travail du Centre d'Economie de la Sorbonne 17022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. repec:eee:jimfin:v:84:y:2018:i:c:p:42-57 is not listed on IDEAS
    4. José De Gregorio, 2018. "Productivity in Emerging Market Economies: Slowdown or Stagnation?," Working Papers wp471, University of Chile, Department of Economics.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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