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Can emerging economies decouple from the US business cycle?

  • Eleonora Cutrini

    (University of Macerata)

  • Giorgio Galeazzi

    (University of Macerata)

In this paper we focus on the decoupling hypothesis between emerging countries and United States, as the more influent economy for the business cycle movements of advanced countries. Despite the theoretical and empirical analyses to date, it seems fair to say that there is no consensus on the main determinants of differences or similarities in the business fluctuations among countries or groups. We contribute to the debate using quarterly seasonally adjusted data over the period 1995–2010 and find that after a period of substantial increase in business cycles synchronization, different groups of emerging economies decoupled from the United States before the outbreak of the financial crisis (between 2003 and 2007). During the peak of the crisis the change in business cycle was so huge to determine the “decoupling reversal” (or recoupling) that results from our analysis. Furthermore, we investigate the conditions under which emerging economies can actually avoid being involved into the United States recession or at least minimize the consequences. Our results suggest as key variables domestic demand, intraregional linkages and quality of institutions. The higher the level of these variables, the most likely is to reduce their dependence from the US business cycle.

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Paper provided by Macerata University, Department of Studies on Economic Development (DiSSE) in its series Working Papers with number 41-2012.

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Date of creation: May 2012
Date of revision: Jul 2014
Handle: RePEc:mcr:wpaper:wpaper00041
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  1. Mark Mink & Jan P.A.M. Jacobs & Jakob de Haan, 2012. "Measuring coherence of output gaps with an application to the euro area," Oxford Economic Papers, Oxford University Press, vol. 64(2), pages 217-236, April.
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  9. M. Ayhan Kose & Christopher Otrok & Eswar S. Prasad, 2008. "Global Business Cycles: Convergence or Decoupling?," NBER Working Papers 14292, National Bureau of Economic Research, Inc.
  10. Prema-chandra Athukorala & Archanun Kohpaiboon, 2009. "Intra-Regional Trade in East Asia: The Decoupling Fallacy, Crisis, and Policy Challenges," Departmental Working Papers 2009-09, The Australian National University, Arndt-Corden Department of Economics.
  11. Marianne Baxter & Michael Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
  12. Korhonen, Iikka & Fidrmuc , Jarko, 2009. "The impact of the global financial crisis on business cycles in Asian emerging economies," BOFIT Discussion Papers 11/2009, Bank of Finland, Institute for Economies in Transition.
  13. Nathaniel Frank & Heiko Hesse, 2009. "Financial Spillovers to Emerging Markets during the Global Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 507-521, December.
  14. Stephan Danninger & Irina Tytell & Ravi Balakrishnan & Selim Elekdag, 2009. "The Transmission of Financial Stress From Advanced to Emerging Economies," IMF Working Papers 09/133, International Monetary Fund.
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