Business Cycles Synchronicity and Income Levels: Has Globalisation Brought us Closer Than Ever?

Rosmy Jean Louis and Daniel Simons

The World Economy, 2014, vol. 37, issue 5, 592-624

Abstract: type="main" xml:id="twec12074-abs-0001">

Research on business cycle linkages shows a tendency to model countries of relatively the same income levels jointly. However, the issue of whether these countries move along the same business cycles has not been formally investigated in the literature. In this paper, we take this approach and investigate whether each group of countries follows its own dynamics and is therefore subjected to the same business cycle and whether these cycles are independent of each other across income groups. Results indicate that high income per capita countries (HICs) tend to be guided by stronger similarity in business cycles than countries in the middle (MICs) and low income (LICs) groups. In search for an explanation of the business cycles synchronicity observed, panel data analysis was explored. The results from the robust fixed effects estimation show neither trade openness nor shocks to consumption underlie international business cycle synchronization, but rather shocks to oil prices.

Date: 2014
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