BUSINESS CYCLE,CURRENCY AND TRADE,REVISITED

This paper provides long‐run historical evidence for the link between business cycle synchronization, trade and the exchange rate regime. Using data from a large number of industrialized countries and a group of Asian economies, we examine this link in three sub‐periods: the first globalization period (1870–1913), the bloc economy period (1915–1959) and the second globalization period (1960–2004). The business cycle is identified as the series of deviates from a Hodrick–Prescott filtered trend. Cyclical turning points are located in the business cycles of our sample of 21 major countries, which enables us to comment on the characteristics of business cycles in the three periods. Cross‐correlations of the cyclical deviates are calculated for all the pairs of the 21 countries examined. It is apparent from casual inspection that the business cycle characteristics and the pattern of cross‐correlations in the bloc economy period are different from those found for the two globalization periods, whereas there is less difference between the two globalization periods. Following the estimations by Frankel and Rose, we relate business cycle synchronization to trade patterns and currency unions. Consequently, we find that European integration was already discernible in terms of business cycle synchronization in the early 1900s and that a similar synchronization was not discernible for Asia.     

HOW DO FISCAL CONSOLIDATION AND FISCAL STIMULI IMPACT ON THE SYNCHRONIZATION OF BUSINESS CYCLES?

Using quarterly data for a panel of advanced economies, we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked. We also find: (i) some evidence of decoupling when an inflation targeting regime is unilaterally adopted; (ii) an increase in business cycle synchronization when countries fix their exchange rates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronization of business cycles. Global factors, such as a rise in global risk aversion and uncertainty and a reversal of nonstandard expansionary monetary policy, can also reduce the degree of co‐movement of business cycles across countries. From a policy perspective, our work shows that an inflation targeting regime coupled with simultaneous fiscal consolidations can lead to more business cycle synchronization.     

The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro‐Cyclicality

This study takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly economic indicators. It first analyses whether the last cycle has been different compared to previous cycles in terms of length, amplitude, asymmetry and changes of these parameters during expansions and contractions. We also study the degree of economic and financial cycle synchronization between OECD countries but also of economic and financial variables within a given country and gauge the extent to which cycle synchronization changed over time. We next describe the connection between the great moderation and the last cycle. Finally, the study discusses the synchronization between the real economy and the financial sector and provides some new evidence on the banking sector's pro‐cyclicality by using aggregate and bank level. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part, this was linked to developments in the banking sector which tended to accentuate pro‐cyclical behaviour. Greater synchronization of cycles may help explain the severity of the crisis.     

Global financial cycle and Brazil’s financial integration

ABSTRACT

Recent studies have discussed the influence of the global financial cycle on capital flows to emerging and developing countries. This paper evaluates the relationship between the greater degree of financial integration, and macroeconomic performance over the last two decades in Brazil. The literature has highlighted the Brazilian experience as being paradigmatic among emerging countries regarding the relationship between financial integration and regulation of capital flows to deal with boom and bust cycles. Methodologically, we employ a vector autoregressive model with error correction that allows us to evaluate the cointegration between the variables. Our main hypothesis is that a greater degree of financial integration is associated with negative developments in variables such as gross domestic product, country risk, interest rates, and exchange rate volatility. In addition, this study presents a further contribution by observing the existence of the interaction between the consequences of financial integration and the global financial cycle. More specifically, we found that: (i) an increase in the degree of financial integration generates deeper effects in downward periods of the global financial cycle; and (ii) a decline in that cycle generates greater impacts when a higher degree of financial integration is present.     

Business Cycle Synchronization in EU: A Time‐Varying Approach

This article investigates the time‐varying correlation between the EU12‐wide business cycle and the initial EU12 member‐countries based on Scalar‐BEKK and multivariate Riskmetrics model frameworks for the period 1980–2012. The paper provides evidence that changes in the business cycle synchronization correspond to major economic events that have taken place at a European level. In the main, business cycle synchronization until 2007 had moved in a direction positive for the operation of a single currency, suggesting that the common monetary policy was less costly in terms of lost flexibility at the national level. However, as a result of the Great Recession of 2007 and the subsequent Eurozone Crisis, a number of periphery countries, most notably Greece, have experienced desynchronization of their business cycles with the EU12‐wide cycle. Nevertheless, for most countries, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to a lack of cyclical synchronization.     

Fiscal policy,business cycles and discretion: evidence from the Western Balkans

While previous research has examined the macroeconomic performance of the New Member States during the boom–bust cycle of the 2000s, very little has been written on the experience of the Western Balkans. In this article we investigate the responsiveness of fiscal policy to business cycles in the Western Balkans, examining whether expenditure moved counter-cyclically and whether a larger proportion of expenditure was ‘discretionary’; that is, related to the political cycle rather than economic conditions. Our results suggest that fiscal policy did not move counter-cyclically in the Western Balkans. Instead, countries overspent in the boom years and then reduced spending as a result of financing constraints during the crisis. Furthermore, the discretionary component of fiscal policy, defined here as spending unexplained by inertia and economic conditions, appears to be somewhat larger in the Western Balkans than in the European Union. This has important policy implications that affect the effectiveness of fiscal policy in dampening economic fluctuations.     

Credit and business cycles’ relationship: evidence from Spain

This study provides evidence on the interaction between business and credit cycles in Spain during the period 1970–2014. The paper works on three analyses: the cycle turning points are identified; the main features of credit and business cycles are documented; and in both cycles the causal relationship is assessed. We find differences in the features of the business and credit cycle phases, which lead to a scant degree of synchronization over time. The lack of synchronization might be a sign that the cyclic interaction could be non-contemporaneous. Our results reveal that there is causation. A significant lagged relationship between business and credit cycles is found; specifically, fluctuations of the business cycle lead fluctuations of the credit to non-financial corporations and a lag exists with respect to the fluctuations of the credit to households. We also examine episodes of credit boom and credit crunch. In the period 1970–2014, Spanish credit booms did not involve deeper business cycle contractions and credit crunches were not associated with deeper and longer business cycle contractions. These differences are related with the great importance of the real estate sector in Spain.     

HOUSING WEALTH AND U.S. MONEY DEMAND: A PANEL ESTIMATION

This article estimates a panel model for U.S. money demand using annual state‐level data for the period from 1977 to 2008. We incorporate housing wealth in the demand‐for‐money function and find strong evidence of a relationship between a broad monetary aggregate and housing wealth. This finding is robust to the inclusion of variables measuring financial heterogeneity across U.S. regions. Breaking up the sample in two subperiods shows that panel estimates including housing wealth yield more stable coefficients than both time‐series estimates and panel estimates excluding housing wealth. We also show that the link between money and housing wealth predates the recent boom‐and‐bust cycle. (JEL E41, E52)     

The Productivity Slowdown Puzzle. Technological and Non-technological Shocks in the Labor Market

Abstract

In this paper we examine the relationships between business cycles in the G7 countries. We focus on whether recessionary periods in one country are independent of the timing of recessions in other countries in the G7, using three different methods for dating recessions. We find that the evidence is mixed on whether phases of the business cycle in North America and in European countries are independent, or whether there is a common phase structure in the business cycle across all the G7 economies. NBER dates suggest that business cycles are synchronised, while other methods for generating business cycle chronologies are more consistent with regional, rather than international cycles. We also find mixed evidence on whether the UK is synchronised with European countries, while Japan quite clearly has the cycle that is most independent of other G7 countries.     

近十年全球主要国家房价波动的特征及驱动因素——基于经济学文献的分析

过去十年全球房价的上涨幅度与持续时间都是历史罕见的,各主要国家实际房价周期表现出高度的同步性。虽然本轮房价膨胀与经济周期相背离,但是多数国家房价的上涨仍然处于合理范围内。全球实际利率的持续走低与流动性过剩可能是全球房价膨胀与同向变化的主要因素。     

Fiscal policy and economic activity in South Asia

This paper analyzes whether fiscal policy in South Asia amplifies or smoothens business cycle fluctuations. It estimates several econometric models to explore the cyclicality of government spending and tax buoyancy. In South Asia, tax revenue increases less than one to one with changes in gross domestic product (GDP), but public spending increases more than proportionally. For each percentage point change in GDP growth, government expenditure changes by 1.3 percentage points. While changes in tax revenue have no significant impact on economic activity, the government spending multiplier is positive and significant: each additional US dollar (USD) of spending leads to an immediate increase in GDP of 0.2 USD and to an increase of 0.4 USD in the medium run. The impact of public spending on economic activity is entirely due to capital expenditure, which is also more procyclical. Procyclical public spending and a positive expenditure multiplier imply that fiscal policy in South Asia amplifies boom‐and‐bust cycles. These results are in line with those of other emerging markets and developing economies and robust to different model specifications and estimation strategies.     

Dutch disease and the oil boom and bust

This paper examines the impact of the oil price boom in the 1970s and the subsequent bust on non‐oil economic activity in oil‐dependent countries. During the boom, manufacturing exports and output increased significantly relative to non‐oil countries. These measures decreased gradually during the bust and subsequent period of low prices, displaying a positive relationship with oil prices. However, exports of agricultural products sharply decreased during the boom. Imports of all types of goods displayed strong pro‐cyclicality with respect to oil prices. The results suggest that increased local demand and investment spillovers from the windfall resulted in increased manufacturing activity.     

BUSINESS CYCLES AND ADMISSIONS TO SUBSTANCE ABUSE TREATMENT

We study the effect of business cycles on admissions to specialty substance abuse treatment using administrative data between 1992 and 2015. We proxy business cycles with the state unemployment rate and apply a panel fixed‐effects model. While previous economic research has shown that substance abuse is counter‐cyclical, we observe no change in the total number of admissions across the business cycle. However, focusing on average effects misses important heterogeneity. In substance‐specific regressions we find statistically significant evidence that heroin‐related admissions are counter‐cyclical while stimulant‐related admissions are procyclical. Our findings add to the literature on business cycles and health. (JEL I1, J2)     

Business Cycle Synchronization in the Proposed East African Monetary Union: An Unobserved Component Approach

This paper uses the business cycle synchronization criteria of the theory of optimum currency area (OCA) to examine the feasibility of the East African Community (EAC) as a monetary union. We also investigate whether the degree of business cycle synchronization has increased after the 1999 EAC Treaty. We use an unobserved component model to measure business cycle synchronization as the proportion of structural shocks that are common across different countries, and a time‐varying parameter model to examine the dynamics of synchronization over time. We find that although the degree of synchronization has increased since 2000 when the EAC Treaty came into force, the proportion of shocks that is common across different countries is still small implying weak synchronization. This evidence casts doubt on the feasibility of a monetary union for the EAC as scheduled by 2012.     

Financial frictions,interest rate dynamics,and international business cycle synchronization

A two‐country real business cycle model with national endogenous borrowing constraints and working capital requirements can account for the high level of international co‐movements. The effects of technology shocks are transmitted internationally through the dynamics of the interest rate. Specifically, the borrowing mechanism brings about a wedge between the real interest rate and the expected marginal product of capital, such that interest rates fall following positive technology shocks. A lower interest rate induces more investment by Foreign firms, which in turn contribute to greater synchronization of economic activities across countries. Moreover, terms of trade amplify the effects of technology shocks.     

Business cycles synchronization in East Asia: A Markov-switching approach

This paper attempts to analyze the relationships between the ASEAN-5's business cycles. We examine the nature of business cycle synchronization trying to disentangle between intraregional and interregional synchronization by considering the important role of China, Japan and the US in synchronizing the activity within the ASEAN-5. We employ a time-varying transition probability Markov switching framework in order to allow the degree of synchronization to fluctuate across the phases of the business cycles. We provide evidence that the signals contained in some regional and global leading business cycles can impact the ASEAN-5's business cycles.     

On the self-fulfilling prophecy of changes in sovereign ratings

We empirically investigate the dynamic interactions between sovereign ratings and the macroeconomic environment using a Panel VAR on annual data for European countries from 1996 to 2013. Our results provide evidence for a significant two-way interaction between the macroeconomic environment and changes in sovereigns' ratings. Thus, rating changes are able to exacerbate a country's boom–bust cycle.     

A Kaleckian model of business cycle synchronization

Abstract

A non-linear, two-country Kaleckian model of the business cycle was developed for investigating business cycle synchronization. The model includes three components: a country-specific business cycle-generating equation, a transmission mechanism and time delays in the transmission mechanism. The model constructed is a non-linear delay-differential equation system. Solutions to the model without time delays in transmission are derived using the averaging method. The solutions show that the model produces limit cycles representing business cycles. The model with time delays in transmission is then solved numerically in order to investigate the role played by the coupling strength and coupling delay in transforming otherwise independent country-specific cycles into a synchronized business cycle. The degree of synchronization of the business cycle is shown to be positively related to the coupling strength. Moreover, coupling delays above a certain threshold play a desynchronizing role.     

监管压力、经济周期与宏观审慎政策效果*

本文基于我国52家主要银行2007—2015年的面板数据,考察了监管压力和经济周期对宏观审慎政策效果的影响。相关实证结果表明：（1）监管压力的上升能够显著促使银行增加资本缓冲,逆周期的宏观审慎政策在总体是有效的。（2）监管压力的上升会促使银行加快其资本缓冲的调整速度,这在城市商业银行和农村商业银行等中小银行表现得尤为明显。（3）经济周期会对宏观审慎政策的有效性产生一定影响,但这一影响在不同性质的银行中有所不同。对于国有商业银行和股份制商业银行,经济上行期的政策效果相对较弱,而在经济下行期,政策效果相对较强。对于城市商业银行和农村商业银行,经济周期的影响恰好相反。（4）在顺周期性机制下,银行行为存在过度承担风险以获取高收益的倾向,通过提升监管压力可以有效抑制这一倾向,从而促使银行降低风险,提高稳定性。     

Determinants of co-movement and of lead and lag behavior of business cycles in the Eurozone

In this paper we study business cycle correlations in the Eurozone and its determinants. Additionally, we also analyze the determinants of the lead and lag behavior of business cycles in the Eurozone. We explore the relevance, in the Eurozone context, using GDP and employment as the business cycle measures, of the determinants of business cycle synchronization identified in the literature, namely bilateral trade intensity, dissimilarity of labor market rigidity, dissimilarity in industrial structures, financial openness, and foreign direct investment relations. We estimate a simultaneous 4-equations model by Ordinary Least Squares (OLS) and three-stage least square to investigate empirically the above-mentioned determinants of business cycle correlation. Bilateral trade relations present a positive influence on business cycle correlations, while the dissimilarity of labor market rigidity presents a negative influence. The rest of the above-mentioned variables are non-significant. These results are robust to the use of the Hodrick–Prescott-filter and first differences as the de-trending methods, as well as the use of GDP as the business cycle measure, excluding the financial crisis years (2008 and 2009). Results for employment as the business cycle measure are in contrast with the previous ones, and found industrial dissimilarity to be the relevant variable to determine business cycles synchronization. In what concerns the determinants of the lead and lag behavior, results show that the member states of the Eurozone that usually lead the cycle are the ones that are wealthier, with strict employment legislation, more specialized in construction and finance sectors, and more prone to international capital movements. Differences in the determinants between contemporaneous business cycles and lead and lag behavior of business cycles are especially important for policy-makers in the Eurozone to know about, in particular if asymmetric shocks between countries are set in place.