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Co-Fluctuations

  • 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
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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  1. 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.
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  8. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
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  15. 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.
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  17. 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.
  18. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  19. 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.
  20. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
  21. Kraay, Aart & Ventura, Jaume, 1995. "Trade and fluctuations," Policy Research Working Paper Series 1560, The World Bank.
  22. 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.
  23. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo Group Munich.
  24. 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.
  25. Wolfgang Keller, 1997. "Trade and Transmission of Technology," NBER Working Papers 6113, National Bureau of Economic Research, Inc.
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