Do trade and financial linkages foster business cycle synchronization in a small economy?

Alicia García-Herrero () and Juan Ruiz
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Alicia García-Herrero: BBVA
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 810, Working Papers from Banco de España

Abstract: We estimate a system of equations to analyze whether bilateral trade and financial linkages influence business cycle synchronization directly and/or indirectly. Our paper builds upon the existing literature by using bilateral trade and financial flows for a small, open economy (Spain) as benchmark for the results, instead of the US as generally done in the literature. We find that both the similarity of productive structure and trade links promote the synchronization of cycles. However, bilateral financial links are inversely related to the co movement of output. This might point to financial integration allowing an easiertransfer of resources between two economies, which could enable their decoupling, as predicted by a standard model of international business cycles. Both the effects of trade and financial links on output synchronization are statistically significant and economically relevant.

Keywords: business cycle synchronization; trade linkages; financial linkages; productive structure; integration (search for similar items in EconPapers)
JEL-codes: E32 E44 F12 F41 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2008-06
New Economics Papers: this item is included in nep-int, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

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Related works:
Working Paper: Do Trade and Financial Linkages Foster Business cycle Synchronization in a small economy? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0810

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