The First Global Recession in Decades

Abstract

I use monthly data on industrial production to estimate the distribution of international business cycle correlations since the 1980's, with focus on the current turmoil. The degree of international correlation in national business cycles since the end of 2008 is unprecedented in three decades. From 2008M12, an upward shift in the cross-sectional distribution of cycles synchronization is sizeable and signi cant, especially between advanced economies. The magnitude of the shift is unprecedented in recent history, even relative to what happened since 1980 after alternative shocks with worldwide consequences. Both goods and assets trade have contributed to this synchronization. The (large and signi cant) synchronization amongst OECD economies is associated with nancial openness. The (weaker) di usion amongst developing economies tends to happen between trade partners.

Business cycles, international trade and capital flows: evidence from Latin America

“…By contrast, short-term capital and foreign direct investment flows reinforce in the short run the role of the trade channel and make the LA region more vulnerable to shocks from abroad, consistently with recent empirical evidence (e.g. Imbs 2010).…”

“…As for capital flows, several studies give support to the view that financial integration increases the degree of business cycle correlations in cross sections and over time (Imbs 2010), whilst other papers (e.g. Kalemli-Ozcan et al 2009) find that financially integrated economies have negative co-movements, as posited by standard international real business cycle models with complete markets (Backus et al 1994).…”

Trade and Uncertainty

“…Baldwin (2009, introductory chapter) notes that "all 104 nations on which the WTO reports data experienced a drop in both imports and exports during the second half of 2008 and the first half of 2009." The synchronization hints at a common cause (Imbs 2010).…”

Demand Spillovers and the Collapse of Trade in the Global Recession

“…Blanchard, Faruqee, and Das (2010), Imbs (2010), and Lane and Milesi-Ferretti (2010) all point to trade as a key transmission vector of the crisis. Using a variety of specifications and control variables, these papers all present evidence that overall trade openness is a robust predictor of the severity of recession in particular countries.…”