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Finance and synchronization

Cesa-Bianchi, Ambrogio, Jean Imbs () and Jumana Saleheen

Journal of International Economics, 2019, vol. 116, issue C, 74-87

Abstract: In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.

Keywords: Financial linkages; Business cycles synchronization; Contagion; Common Shocks; Idiosyncratic Shocks (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Finance and Synchronization (2019)
Working Paper: Finance and Synchronization (2016) Downloads
Working Paper: Finance and Synchronization (2016) Downloads
Working Paper: Finance and Synchronization (2016) Downloads
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