Trade interdependence and the international business cycle

Canova, Fabio; Dellas, Harris

doi:10.1016/0022-1996(93)90065-6

Cited by 228 publications

(135 citation statements)

References 14 publications

Supporting

Mentioning

128

Contrasting

Unclassified

Order By: Relevance

“…Mainstream macroeconomic models (both real business cycle models and DSGE models) have found it difficult to replicate the observed high synchronization of business cycles in the industrialized world. This problem was first pointed out by Backus et al (1992) who found that standard open economy versions of real business cycle models could not explain the high level of synchronization of the business cycles across countries (see also Canova and Dellas 1993). Open economy versions of DSGE-models have experienced the same problem (see Kollmann 1995;Alpanda and Aysun 2014).…”

Section: Introductionmentioning

confidence: 88%

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

2017

Open Econ Rev

View full text Add to dashboard Cite

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.

show abstract

Section: Introductionmentioning

confidence: 88%

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

2017

Open Econ Rev

View full text Add to dashboard Cite

show abstract

“…1 Anderson, Kwark, and Vahid (1999) also find that there is a positive association between trade volume and the degree of business cycle synchronization. Canova and Dellas (1993) find international trade plays a relatively moderate role in transmitting business cycles across countries. 2 FR, p. 1015-1016.…”

Section: Introductionmentioning

confidence: 99%

“…In particular, we study how changes in the spillover coefficient, persistence, and correlation of the shocks affect the responsiveness of output comovement to increased trade. 8 For recent time series work on the transmission of business cycles via international trade, see Prasad (2001) and SchmittGrohe (1998).…”

Section: Effects Of Trade On Comovement In a Business Cycle Modelmentioning

confidence: 99%

“…7 As a reminder, the exercises we undertake are cross-section exercises, not time series exercises. 8 In particular, they are designed to conform to the cross-section regressions of FR and others. The regression coefficient on the trade intensity variable tells us that if trade between a pair of countries increases by a factor of e, then, all else equal, the GDP correlation will increase by the value of the coefficient.…”

Section: Effects Of Trade On Comovement In a Business Cycle Modelmentioning

confidence: 99%

See 1 more Smart Citation

The Trade Comovement Problem in International Macroeconomics

Köse

2003

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractRecent empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles. We assess whether the standard international business cycle framework can replicate this intuitive result. We employ a three-country model with transportation costs. We simulate the effects of increased goods market integration under two asset market structures: complete markets and international financial autarky. Our main finding is that under international financial autarky the model can generate stronger correlations for pairs of countries that trade more, but the increased correlation falls far short of the empirical findings. In our benchmark calibrations, the model explains at most six percent of the responsiveness of GDP correlations to trade found in the empirical research. This result is robust to many combinations of shock specifications, import shares, and elasticities of substitution. Because the difference between business cycle theory and the empirical results cannot be resolved by changes in parameter values and the structure of the standard models, we call this discrepancy the trade comovement problem. JEL Classification code: F4

show abstract

“…Therefore, a large empirical literature has been developed to analyze the influence of trade relations on business cycle synchronization. Over all, the results tend to confirm a positive impact of trade integration on economic synchronization, especially for advanced economies (see e.g., Canova and Dellas, 1993;Clark and Van Wincoop, 2001;Bordo and Helbling, 2003;Kose et al, 2008Kose et al, , 2003aCrucini et al, 2011;Antonakakis, 2012;Kose et al, 2012;Cerqueira, 2013). A similar outcome emerges when trade integration promotes more intra-industry trade than inter-industry trade (Frankel and Rose, 1998;Imbs, 2004;Baxter and Kouparitsas, 2005;Calderón et al, 2007;and Inklaar et al 2008).…”

Section: Related Literaturementioning

confidence: 72%

On the Determinants of Output Co-Movements in the CEMAC Zone: Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors

Atenga

Martial

2017

SSRN Journal

View full text Add to dashboard Cite

________________________________________________________________________ This paper aim to examine the forces driving co-movements in the CEMAC. For that purpose, a two-step methodology is employed. First, a DCC-GARCH is used to assess correlations between member states. Second, panel models are employed to examine whether and the extent to which trade, policies, economic structure and common factors determine output growth correlations. Results from the DCC-GARCH model suggest that spikes of co-movements appear during high volatility oil prices episodes namely the 1998 oil crisis, the 2008 financial crisis and the recent 2014 collapse. Panel regressions suggest that trade has negative effects on output co-movements. The differential fiscal policy displays strong and significant positive effects on output correlations while the role of the single monetary policy is not robust across models. The degree of specialization has negative effects while the financial development increase comovements. The landlocked situation of Chad and Central Africa reduces their comovements with other member states. Results also reveal non-linearities in the effects of trade linkages which are non-significant when the country is landlocked. As a policy implication, national governments may limit the cyclical behaviour of their fiscal policy in order to in increase co-movements in the region.JEL Classifications: E32, E42, F41, F42

show abstract

Trade interdependence and the international business cycle

Cited by 228 publications

References 14 publications

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

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

The Trade Comovement Problem in International Macroeconomics

On the Determinants of Output Co-Movements in the CEMAC Zone: Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors

Contact Info

Product

Resources

About