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Asian Business Cycle Synchronisation

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  • Dong He

    (Hong Kong Institute for Monetary Research)

  • Wei Liao

    (Hong Kong Institute for Monetary Research)

Abstract

This paper develops a multi-level structural factor model to study international output comovement and its underlying driving forces. Our method combines a structural VAR with a multi-level factor model, which helps us understand the economic meaning of the estimated factors. Using quarterly data of real GDP growth covering nine emerging Asian economies and G-7 countries, we estimate a global supply factor, a global demand factor, and group supply and demand factors for each group of the economies. We find that, while the role of the global factors has intensified over the past fifteen years for most of the economies, output fluctuations in Asia have remained less synchronised with the global factor than those in the industrial countries. The Asian regional factors have become increasingly important in tightening the interdependence within the region over time. Thus while emerging Asian economies cannot "decouple" completely from the advanced economies, they have nonetheless sustained a strong independent cycle among themselves. We also find that synchronised supply shocks contributed more to the observed synchronisation in output fluctuations among the Asian economies than demand shocks. This points to the role of productivity enhancement through vertical trade integration, rather than dependence on external demand, as the primary source of business cycle synchronisation in emerging Asia.

Suggested Citation

  • Dong He & Wei Liao, 2011. "Asian Business Cycle Synchronisation," Working Papers 062011, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:062011
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    Cited by:

    1. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    2. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Regionalization vs. globalization," Working Papers 2013-002, Federal Reserve Bank of St. Louis.
    3. Dai, Yuwen, 2014. "Business Cycle Synchronization in Asia: The Role of Financial and Trade Linkages," Working Papers on Regional Economic Integration 139, Asian Development Bank.
    4. Huh, Hyeon-seung & Kim, David & Kim, Won Joong & Park, Cyn-Young, 2015. "A factor-augmented VAR analysis of business cycle synchronization in east Asia and implications for a regional currency union," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 449-468.
    5. Fidrmuc, Jarko & Korhonen, Iikka, 2015. "Meta-analysis of Chinese business cycle correlation," BOFIT Discussion Papers 6/2015, Bank of Finland, Institute for Economies in Transition.
    6. Jarko Fidrmuc & Iikka Korhonen & Ivana Bátorová, 2013. "China in the World Economy: Dynamic Correlation Analysis of Business Cycles," CESifo Economic Studies, CESifo, vol. 59(2), pages 392-411, June.
    7. Ippei Fujiwara & Koji Takahashi, 2012. "Asian Financial Linkage: Macro‐Finance Dissonance," Pacific Economic Review, Wiley Blackwell, vol. 17(1), pages 136-159, February.
    8. Eleonora Cutrini & Giorgio Galeazzi, 2012. "Can emerging economies decouple from the US business cycle?," Working Papers 41-2012, Macerata University, Department of Studies on Economic Development (DiSSE), revised Jul 2014.
    9. Larry D. Qiu & Chaoqun Zhan, 2016. "Special Section: China's Growing Trade and its Role to the World Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(1), pages 45-71, February.
    10. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    11. Etoundi Atenga, Eric Martial, 2017. "On the Determinants of output Co-movements in the CEMAC Zone:Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors," MPRA Paper 82091, University Library of Munich, Germany.
    12. He, Dong & Liao, Wei & Wu, Tommy, 2015. "Hong Kong's growth synchronization with China and the US: A trend and cycle analysis," Journal of Asian Economics, Elsevier, vol. 40(C), pages 10-28.
    13. Etro, Federico, 2016. "The Ramsey model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 145(C), pages 141-144.
    14. Paul De Grauwe & Zhaoyong Zhang & Kin-Yip Ho & Yanlin Shi & Zhaoyong Zhang, 2016. "It takes two to tango: A regime-switching analysis of the correlation dynamics between the mainland Chinese and Hong Kong stock markets," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(1), pages 41-65, February.
    15. Atalay, Yasemin & Kalfagianni, Agni & Pattberg, Philipp, 2017. "Renewable energy support mechanisms in the Gulf Cooperation Council states: Analyzing the feasibility of feed-in tariffs and auction mechanisms," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 723-733.
    16. Boehe, Dirk Michael, 2014. "Strategic hedging: Evidence from Brazilian exporters," Journal of World Business, Elsevier, vol. 49(3), pages 290-300.
    17. Huh, Hyeon-seung & Kim, David & Kim, Won Joong & Park, Cyn-Young, 2013. "A Factor-Augmented Vector Autoregression Analysis of Business Cycle Synchronization in East Asia and Implications for a Regional Currency Union," ADB Economics Working Paper Series 385, Asian Development Bank.
    18. Dong He & Paul Luk & Wenlang Zhang, 2016. "Internationalisation of the Renminbi as an Investing and a Funding Currency: Analytics and Prospects," Pacific Economic Review, Wiley Blackwell, vol. 21(3), pages 295-323, August.
    19. Sylvain Leduc & Mark M. Spiegel, 2013. "Is Asia Decoupling from the United States (Again)?," Pacific Economic Review, Wiley Blackwell, vol. 18(3), pages 345-369, August.
    20. Sethapramote, Yuthana, 2015. "Synchronization of business cycles and economic policy linkages in ASEAN," Journal of Asian Economics, Elsevier, vol. 39(C), pages 126-136.
    21. Hundt Christian & Sternberg Rolf, 2014. "How Did the Economic Crisis Influence New Firm Creation?: A Multilevel Approach Based Upon Data from German Regions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(6), pages 722-756, December.
    22. Siklos, Pierre L., 2012. "No coupling, no decoupling, only mutual inter-dependence : Business cycles in emerging vs. mature economies," BOFIT Discussion Papers 17/2012, Bank of Finland, Institute for Economies in Transition.
    23. Martin Feldkircher & Iikka Korhonen, 2014. "The Rise of China and Its Implications for the Global Economy: Evidence from a Global Vector Autoregressive Model," Pacific Economic Review, Wiley Blackwell, vol. 19(1), pages 61-89, February.

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    Keywords

    Business Cycle Synchronization; Asia's External Dependency; Decoupling; Multi-Level Factor Model; Structural VAR;

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