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Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

Hannes Böhm (), Julia Schaumburg () and Lena Tonzer
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Hannes Böhm: Halle Institute for Economic Research (IWH)
Julia Schaumburg: Vrije Universiteit Amsterdam and Tinbergen Institute

IMF Economic Review, 2022, vol. 70, issue 4, No 3, 698-734

Abstract: Abstract We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.

JEL-codes: E32 F44 G10 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe (2020) Downloads
Working Paper: Financial linkages and sectoral business cycle synchronisation: Evidence from Europe (2020) Downloads
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DOI: 10.1057/s41308-022-00173-9

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