Synchronisation of business cycles in Russia and China

Denis Krylov () and Nikita Pakhmutov ()
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Denis Krylov: Bank of Russia, Russian Federation
Nikita Pakhmutov: Higher School of Economics, Russian Federation

No wps150, Bank of Russia Working Paper Series from Bank of Russia

Abstract: The past two decades have seen a rise in China’s share of global trade. Its role has become particularly prominent in Russia’s foreign economic relations after 2022, due to the reorientation of trade flows from Europe and the United States toward China and other Asian countries. This study aims to assess the impact of the changes in foreign trade on Russian business cycles. Specifically, we intend to verify a hypothesis about a greater degree of synchronisation in the business cycles of China and Russia since 2022, driven by the higher volumes of bilateral trade. We use GVAR with time-varying weights as the method of our analysis. The weights are the shares of the countries that generate value-added foreign trade. We measure the degree of synchronisation between Russia and China based on an analysis of Russia's output impulse responses to simulated positive output shocks for China, taking into account the secondary effects of Asia, the US and Europe. According to our research, the response of Russia's output to positive shock of China’s local output in 2023 was almost double that in 2019. If we simulate a global economic crisis in which a shock in China triggers a proportional drop in the output of other countries, particularly the US and the EU, we find that the degree of synchronisation between 2019 and 2023 remains unchanged. Put differently, the response of Russia’s output to shock of output in China is unchanged under this scenario. Our results can be used to adjust macroeconomic models to the new environment for the Russian economy and thus improve predictive capabilities and analytics.

Keywords: Russia; China; international business cycles; trade relations; OECD TiVA; Global VAR (search for similar items in EconPapers)
JEL-codes: C32 E32 F15 F44 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2025-05
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