Business cycles synchronization in East Asian economy: Evidences from time-varying coherence study

Jean-Pierre Allegret and Essahbi Essaadi

Economic Modelling, 2011, vol. 28, issue 1, 351-365

Abstract: This paper analyzes the feasibility of a monetary union in East Asia focusing on business cycles synchronization. Considering the critical role of trade integration in the East Asian integration process, we study whether East Asian countries are characterized by business cycle synchronization. The related empirical literature dedicated to business cycles synchronization in East Asia does not lead to firm conclusion. In this paper, we suggest a different empirical approach allowing, contrary to the previous studies, to detect endogenously structural changes in the comovement process between outputs. We apply a new measure based on the time-varying coherence function. Such a measure not only detects comovement dynamics but it distinguishes also this dynamics between short- and long-term. We compute also cohesion statistics to test if countries tend to be more synchronized or not. The main finding of this paper is that the increase in bilateral trade inside the East Asian region significantly improves long-run business cycle synchronization. The short-run influence of bilateral trade shows mixed results. Indeed, short-run cycles remain significantly influenced both by shocks hitting each country and by economic policy responses. As a consequence, more bilateral trade and convergence in economic policy constitute two complementary processes to promote business cycle synchronization.

Keywords: East Asia; Monetary union; Business cycle synchronization; Spectral analysis; Time-varying coherence function (search for similar items in EconPapers)
JEL-codes: C22 E32 E63 F42 O47 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Journal Article: Business cycles synchronization in East Asian economy: Evidences from time-varying coherence study (2011)
Working Paper: Business cycles synchronization in East Asian economy: evidences from time-varying coherence study (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1:p:351-365

DOI: 10.1016/j.econmod.2010.08.014

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