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How Does Globalization Affect the Synchronization of Business Cycles?

  • M. Ayhan Kose
  • Eswar Prasad
  • Marco Terrones

This paper examines the impact of rising trade and financial integration on international business cycle comovement among a large group of industrial and developing countries. The results provide at best limited support for the conventional wisdom that globalization has increased the degree of synchronization of business cycles. The evidence that trade and financial integration enhance global spillovers of macroeconomic fluctuations is stronger for industrial countries. One striking result is that, on average, cross-country consumption correlations have not increased in the 1990s, precisely when financial integration would have been expected to result in better risk-sharing opportunities, especially for developing countries.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/27.

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Length: 14
Date of creation: 01 Jan 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/27
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  1. Glenn Otto & Graham Voss & Luke Willard, 2001. "Understanding OECD Output Correlations," RBA Research Discussion Papers rdp2001-05, Reserve Bank of Australia.
  2. Jonathan Heathcote & Fabrizio Perri, 2002. "Financial Globalization and Real Regionalization," NBER Working Papers 9292, National Bureau of Economic Research, Inc.
  3. M. Ayhan Kose & Kei-Mu Yi, 2002. "The trade comovement problem in international macroeconomics," Staff Reports 155, Federal Reserve Bank of New York.
  4. Calderon, Cesar & Chong, Alberto & Stein, Ernesto, 2007. "Trade intensity and business cycle synchronization: Are developing countries any different?," Journal of International Economics, Elsevier, vol. 71(1), pages 2-21, March.
  5. Robin L. Lumsdaine & Eswar Prasad, 1999. "Identifying the Common Component in International Economic Fluctuations: A New Approach," IMF Working Papers 99/154, International Monetary Fund.
  6. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  7. Otrok, Christopher & Whiteman, Charles H, 1998. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 997-1014, November.
  8. repec:imf:imfwpa:03/81 is not listed on IDEAS
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