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The International Synchronisation of Business Cycles: the Role of Animal Spirits

Paul De Grauwe () and Yuemei Ji
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Paul De Grauwe: London School of Economics
Yuemei Ji: University College London

Open Economies Review, 2017, vol. 28, issue 3, 383-412

Abstract: Abstract Business cycles among industrial countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits”, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We do not need a correlation of exogenous shocks to generate synchronization. We also empirically test the main predictions of the model.

Keywords: Animal spirits; Behavioral macroeconomics; Business cycles (search for similar items in EconPapers)
Date: 2017
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