This paper explores different possible factors that have impacted business cycle synchronization across industrialized countries in the past quarter century. We employ a comprehensive model that includes as the main determinants of output co-movements not only trade and financial integration, but also similarities of economic policies and political preferences across countries. Focusing on 14 developed countries from 1980 to 2010, our main finding is that economic policies and the political environment have strong influences on business cycles in each country and their correlations across countries. In particular, we find that having differing political parties between two countries lowers business cycles correlations, but only when we allow for partisan effects to dissipate several quarters after political elections. Our results hold while also controlling for economic determinants of business cycle correlations, including trade, finance, geography and measures of policy convergence. Our findings therefore demonstrate a more comprehensive link between these factors and business cycle synchronization than prior studies.
|Number of pages||15|
|Journal||Journal of Comparative Economics|
|State||Published - Feb 2013|
Bibliographical noteFunding Information:
The authors thank Mukta Ali, Chris Bollinger, and Jakob de Haan for their valuable comments and Taiwan’s National Science Council for its support through grant NSC96-2415-H-110-002-MY2. All remaining errors are our own.
Copyright 2013 Elsevier B.V., All rights reserved.
- Business cycle correlation
- Political business cycle
- Trade and financial integration
ASJC Scopus subject areas
- Economics and Econometrics