Working Paper: CEPR ID: DP7973
Authors: Jean Imbs
Abstract: I use monthly data on industrial production to estimate the distribution of international business cycle correlations since the 1980's, with focus on the current turmoil. The degree of international correlation in national business cycles since the end of 2008 is unprecedented in three decades. From 2008M12, an upward shift in the cross-sectional distribution of cycles synchronization is sizeable and significant, especially between advanced economies. The magnitude of the shift is unprecedented in recent history, even relative to what happened since 1973 after alternative shocks with worldwide consequences. The shift does not arise because volatilities changed with the crisis. Both goods and assets trade have contributed to this synchronization. The (large and significant) synchronization amongst OECD economies is associated with financial openness. The (weaker) diffusion amongst developing economies tends to happen between trade partners.
Keywords: financial linkages; international business cycle; subprime crisis; trade linkages
JEL Codes: E32; F15; F36; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upward shift in distribution of bilateral cycle correlations since late 2008 (C46) | synchronization of national business cycles (F44) |
| synchronization of national business cycles (F44) | associated with financial openness (F30) |
| changes in goods and assets trade (F19) | synchronization of national business cycles (F44) |
| crisis (H12) | changes in goods and assets trade (F19) |