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Business cycles and the synchronization process: a bounds testing approach

Author

Listed:
  • Chan, Tze-Haw
  • Lau, Evan

Abstract

To justify the business cycle synchronization (BCS) process among ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore and Thailand), Japan and the United States, the Autoregressive Distributed Log bounds test and the UECM (Unrestricted Error Correction Model) representation advanced in Pesaran et al. (2001) is deployed. Evidently, ASEAN-5 has achieved some important degree of business cycle co-fluctuations, attributed to the improved intra-trading and cross-boarder investments. Nonetheless, the idiosyncratic and common shocks in ASEAN economies are more identical to the Japanese experience rather than the US’s. Comparable pattern of economic development and liberalization process have created countries (ASEAN-Japan) with similar economic structures, implying that further economic cooperation and currency arrangements in the region are bright. In addition, our findings demonstrate that the bilateral exchange rate stability may not contribute to the business cycle convergence, as in the ASEAN-US case while bilateral exchange rate dispersion has neither jeopardized the ASEAN-Japan BCS process. Also, price divergences among the ASEAN-US-Japan indicate that scope remained for further price convergence if the Japanese Yen or the US dollar is to be adopted as common currency. Nonetheless, regional policy coordination should focus on narrowing the yen/dollar fluctuation, ahead of forming common currency area or monetary union.

Suggested Citation

  • Chan, Tze-Haw & Lau, Evan, 2004. "Business cycles and the synchronization process: a bounds testing approach," MPRA Paper 2030, University Library of Munich, Germany, revised 2005.
  • Handle: RePEc:pra:mprapa:2030
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    File URL: https://mpra.ub.uni-muenchen.de/2053/1/MPRA_paper_2053.pdf
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    References listed on IDEAS

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    Cited by:

    1. Garfa Kamel, 2012. "How Synchronized is the Mena Region with Advanced Economies? Evidence from an Autoregressive Distributed Lag Models," Scientific Annals of Economics and Business, Sciendo, vol. 59(1), pages 239-256, July.

    More about this item

    Keywords

    Business Cycle Synchronisation; ASEAN; ARDL Bounds Test;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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