Working Paper: NBER ID: w10725
Authors: Marianne Baxter; Michael Kouparitsas
Abstract: This paper investigates the determinants of business cycle comovement between countries. Our dataset includes over 100 countries, both developed and developing. We search for variables that are robust' in explaining comovement, using the approach of Leamer (1983). Variables considered are (i) bilateral trade between countries; (ii) total trade in each country; (iii) sectoral structure; (iv) similarity in export and import baskets; (v) factor endowments; and (vi) gravity variables. We find that bilateral trade is robust. However, two variables that the literature has argued are important for business cycles industrial structure and currency unions are found not to be robust.
Keywords: No keywords provided
JEL Codes: F33; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bilateral trade (F10) | Business cycle correlation (E32) |
| Distance between countries (O57) | Business cycle correlation (E32) |
| Industrial structure (L16) | Business cycle correlation (E32) |
| Currency unions (F36) | Business cycle correlation (E32) |
| Total trade measures (F10) | Business cycle correlation (E32) |
| Similarity of industrial structure (L16) | Business cycle correlation (E32) |
| Factor endowments (D33) | Business cycle correlation (E32) |