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Finance and Synchronization

Author

Listed:
  • Ambrogio Cesa-Bianchi

    (Bank of England - Bank of England, CFM - Centro de Fisica de Materiales - CSIC - Consejo Superior de Investigaciones Cientificas [España] = Spanish National Research Council [Spain] - UPV / EHU - Universidad del País Vasco [Espainia] / Euskal Herriko Unibertsitatea [España] = University of the Basque Country [Spain] = Université du pays basque [Espagne])

  • Jean Imbs

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - 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," PSE-Ecole d'économie de Paris (Postprint) halshs-01884379, HAL.
    • Handle: RePEc:hal:pseptp:halshs-01884379
    DOI: 10.1016/j.jinteco.2018.08.007
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    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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