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  • Jean IMBS

This paper studies the determinants of the international synchronization of business cycles. Surprisingly, countries that trade more do not appear to have more synchronized cycles once other factors are accounted for. On the other hand, the extent of co-fluctuations increases quite robustly with the income level, so that two rich countries are unconditionally more synchronized. We develop a model where this happens because the world moves from an unstable steady state with full international specialization to a stable symmetric one. Similar countries produce similar goods and as a result experience sectoral shocks that are of equal importance. By contrast, different income levels reflect differences in production patterns, where the North produces manufactures and the South agricultural goods. Since there is no particular reason why stochastic developments in those two sectors should be correlated with one another, we should expect less cyclical comovement between a rich and a poor country. Finally, the model is consistent with the tendency for trade amongst developed countries to be mostly intra-industry.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9819.

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Length: 31 pages
Date of creation: Nov 1998
Date of revision:
Handle: RePEc:lau:crdeep:9819
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.20
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  1. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
  2. Fatás, Antonio, 1997. "EMU: Countries or Regions? Lessons from the EMS Experience," CEPR Discussion Papers 1558, C.E.P.R. Discussion Papers.
  3. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
  4. Canova, Fabio, 1993. "Sources and Propagation of International Business Cycles: Common Shocks or Transmission?," CEPR Discussion Papers 781, C.E.P.R. Discussion Papers.
  5. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, vol. 45(1), pages 109-134, January.
  6. Keller, Wolfgang, 2002. " Trade and the Transmission of Technology," Journal of Economic Growth, Springer, vol. 7(1), pages 5-24, March.
  7. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  8. Steve Ambler & Emanuela Cardia & Christian Zimmermann, 1998. "International Transmission of the Business Cycle in a Multi-Sectoral Model," Cahiers de recherche CREFE / CREFE Working Papers 60, CREFE, Université du Québec à Montréal.
  9. Robert Kollmann, 2001. "Explaining international comovements of output and asset returns: the role of money and nominal rigidities," ULB Institutional Repository 2013/7632, ULB -- Universite Libre de Bruxelles.
  10. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  11. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  12. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
  13. Wolfgang Keller, 1997. "Trade and Transmission of Technology," NBER Working Papers 6113, National Bureau of Economic Research, Inc.
  14. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo Group Munich.
  15. Baldwin, Richard E & Martin, Philippe & Ottaviano, Gianmarco I P, 2001. " Global Income Divergence, Trade, and Industrialization: The Geography of Growth Take-Offs," Journal of Economic Growth, Springer, vol. 6(1), pages 5-37, March.
  16. Marianne Baxter, 1995. "International Trade and Business Cycles," NBER Working Papers 5025, National Bureau of Economic Research, Inc.
  17. Kollmann, Robert, 1995. "The correlation of productivity growth across regions and industries in the United States," Economics Letters, Elsevier, vol. 47(3-4), pages 437-443, March.
  18. Robin L. Lumsdaine & Eswar S. Prasad, 1997. "Identifying the Common Component in International Economic Fluctuations," NBER Working Papers 5984, National Bureau of Economic Research, Inc.
  19. Shang-Jin Wei & Jeffrey A. Frankel, 1998. "Open Regionalism in a World of Continental Trade Blocs," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 440-453, September.
  20. Krugman, Paul & Venables, Anthony J., 1996. "Integration, specialization, and adjustment," European Economic Review, Elsevier, vol. 40(3-5), pages 959-967, April.
  21. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  22. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
  23. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  24. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  25. Canova, Fabio & Dellas, Harris, 1993. "Trade interdependence and the international business cycle," Journal of International Economics, Elsevier, vol. 34(1-2), pages 23-47, February.
  26. Kraay, Aart & Ventura, Jaume, 1995. "Trade and fluctuations," Policy Research Working Paper Series 1560, The World Bank.
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