The international synchronisation of business cycles: the role of animal spirits

Paul De Grauwe and Yuemei Ji ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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)
JEL-codes: N0 (search for similar items in EconPapers)
Date: 2017-07-01
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Citations: View citations in EconPapers (22)

Published in Open Economies Review, 1, July, 2017. ISSN: 0923-7992

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Related works:
Journal Article: The International Synchronisation of Business Cycles: the Role of Animal Spirits (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:68898

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