Working Paper: CEPR ID: DP11037
Authors: Ambrogio Cesabianchi; Jean Imbs; Jumana Saleheen
Abstract: It is well known that the bulk of international financial flows across countries are driven by common shocks. In response to these common shocks, we find that capital tends to flow systematically between the same types of countries, while the discrepancy between GDP growth rates widens. Thus, in the data synchronization falls when financial linkages rise, but only so in response to common shocks. In contrast, financial linkages tend to increase the synchronization of business cycles in response to purely country-specific shocks.
Keywords: business cycle synchronization; common shocks; contagion; financial linkages; idiosyncratic shocks
JEL Codes: E32; F15; F36; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common shocks (E32) | financial flows (F32) |
| common shocks (E32) | synchronization (C69) |
| inelastic GDP (E20) | elastic GDP (E20) |
| financial linkages (F65) | synchronization (C69) |
| country-specific shocks (F69) | synchronization (C69) |