The World Is Not Enough! Small Open Economies and Regional Dependence

Knut Are Aastveit, Hilde Bjørnland () and Leif Thorsrud

Scandinavian Journal of Economics, 2016, vol. 118, issue 1, 168-195

Abstract: In this paper, we explicitly introduce regional factors into a global dynamic factor model. We combine new open economy factor models (emphasizing global shocks) with the recent findings of regional importance in the business cycle synchronization literature. The analysis is applied to a large panel of domestic data for four small open economies. We find that global and regional shocks explain roughly 30 and 20 percent, respectively, of the business cycle variation in all countries. While global shocks have most impact on trade variables, regional shocks explain a relatively large share of the variation in cost variables.

Date: 2016
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Related works:
Working Paper: The world is not enough! Small open economies and regional dependence (2011)
Working Paper: The world is not enough! Small open economies and regional dependence (2011)
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