A COMPARATIVE ANALYSIS OF THE SYNCHRONISATION OF BUSINESS CYCLES FOR DEVELOPED AND DEVELOPING ECONOMIES WITH THE WORLD BUSINESS CYCLE

Globalisation brought about worldwide changes, including economic and financial integration between countries. The objective of this paper is to establish if there is synchronisation between developed and developing countries with the world cycle. Research results show that business cycles have become less volatile after globalisation, but there is not much consensus on whether business cycles have become less or more synchronised since globalisation. Little research has been done on co‐movement between emerging markets, such as South Africa, and the world business cycle. This paper derives common factors for developed and developing countries by applying principal component analysis (PCA) to output, consumption and investment data, which represents the countries' business cycles. The empirical analysis shows co‐movement between some countries and the world business cycle (G7 countries as proxy). The results suggest that there are idiosyncratic and globally common shocks, which play different roles over time in different countries. The paper goes on to suggest that there are clear differences in how developed and emerging markets co‐move with the world business cycle. A key finding is that the co‐movement between developing economies and the world business cycle has increased since globalisation. This research also confirms previous research that most economies follow the world business cycle when large shocks – such as the recent economic downturn – occur. This has implications for forecasting the business cycle, especially in times of economic turmoil.     

Reflexivity,business cycles,and the new economy

Conclusion Markets are not efficient as that term is currently used in academic finance. Rather, markets are reflexive in that market behavior and the fundamentals reflect each other via a two-way, interactive feedback loop. Free markets remain reflexive unless market participants close the feedback loop, which they can do, and have done, to justify and perpetuate a boom. Practical finance theory was clear on the market behavior boom-bust cycles generate, but it was silent regarding the cause of such cycles. Austrian business cycle theory, on the other hand, provides a clear theoretical explanation of the cause and effects of business cycles. By utilizing both theories in a unified manner it is possible to track each stage of a business cycle, which was demonstrated in an analysis of the recent new economy business cycle. Such an approach could be enormously beneficial to both academicians and practitioners during the next business cycle. A Second Vice President of the General Star Management Company, a subsidiary of Berkshire Hathaway. The opinions expressed in this paper are mine, and do not necessarily represent the views of General Star Management Company or Berkshire Hathaway.     

中国内地与香港经济周期的区制依赖协同性分析——纳入美国经济影响的实证

本文运用Markov区制转移模型,对中国内地与香港经济周期协同性的区制依赖特征以及美国对两地经济周期协同性的影响进行了分析。实证结果不仅证实两地经济周期的协同性存在依赖于经济周期区制状态的门限性质,而且显示:两地经济周期的正向协同性,隐含了美国作为两地之间经济冲击的传递渠道以及两地共同的外部冲击源的影响;当剥离出美国经济的影响之后,两地经济周期的协同程度较为微弱。在此背景下,促进中国内地与香港经济周期的长期趋同,应科学甄别和合理利用美国经济对两地经济周期协同性的影响。     

Inflation and Business Cycle Convergence in the Euro Area: Empirical Analysis Using an Unobserved Component Model

The literature on optimum currency areas states that large inflation differentials can undermine monetary union. In the euro area, inflation rates diverged after the creation of the single currency, but started to converge again from mid-2002. Against this background, we assess the convergence of inflation rates and business cycles and study the relationship between them. The analysis is made using an unobserved component model estimated with the Kalman filter. In general, from 1980 to 2008 inflation rates and business cycles became more aligned in the euro area, but inflation rates converged more quickly than business cycles. The output gap is found to be a better indicator of the business cycle than unit labour cost when studying convergence. By looking at the causality between the convergence of inflation and output gap, it is found that inflation divergence has a limited destabilising economic impact.     

中美两国汇率波动与相对经济周期的联动性——基于频谱分析的研究

本文指出人民币兑美元实际汇率波动可能与中美两国间相对经济周期具有紧密的联动性,为此,本文首先构造了一个理论模型对两国间实际汇率波动与相对经济周期关联的存在性进行了论证,随后应用频谱分析技术对1994:Q1至2011:Q4人民币兑美元实际汇率波动与中美相对经济周期的联动性进行了实证检验。主要的结论有两个,一是在样本时段内中美相对经济周期领先于人民币兑美元实际汇率的波动,二是在4年左右一个波动周期的频域内二者的联动性最高。以上结论说明中美相对经济周期是人民币兑美元汇率波动的决定因素,而调整人民币兑美元汇率并不能改变中美两国经济的失衡关系。     

中国经济周期波动研究(1978～2009年)

本文首先对1978年以来中国经济运行概况及不同学者的经济周期研究进行梳理;在此基础上,本文采用不同滤波方法,对1978～2009年中国经济周期进行了划分,并对产生经济周期波动的原因和传导机制进行了实证检验和深入分析。     

Is there a business cycle in Singapore? Is there a Singaporean business cycle?

This paper explores the existence and examines the characteristics, if any, of business cycles in Singapore. Specifically, the authors ask: Is there a business cycle in Singapore? Is there a Singaporean business cycle? Unlike earlier studies, this paper investigates whether or not there exists a business cycle in Singapore and employs cross-spectral analysis and factor analysis which have advantages over the time-domain techniques. The study shows that there is a business cycle in Singapore and its frequency does not coincide with the periodicity of the two recessions experienced by the country. However, the business cycle is not in any meaningful way Singaporean, as evidenced by the existence of three international factors explaining about 99 percent of the common variance of the series. The idiosyncratic factor is well below 1 percent in all Association of Southeast Asian Nations countries with the exception of the Philippines. The findings have a number of significant implications both from the theoretical and policymaking viewpoint.     

METHOD-OF-MOMENTS MEASUREMENT OF UK BUSINESS CYCLES

This paper illustrates measuring the UK business cycle (detrending)by extracting the component of aggregate output which has momentswhich most closely match those from business-cycle models. Amember of a parametric family of detrending filters (which includeslinear detrending and first differencing as special cases) isselected by the generalized method of moments. Illustrationsuse moments from (i) a fully calibrated, real business cyclemodel and (ii) business-cycle indicators. Measured cycles arecompared to those resulting from HP filtering and to the CSO'sreference cycle.     

International Interdependence and Business Cycle Transmission in ASEAN

This study investigates the international transmission of business cycles among the ASEAN countries of Indonesia, Malaysia, Philippines, Singapore and Thailand, and between the ASEAN nations and their major trading partners, the United States, Australia, Japan, and the European Union. The research uses trade flows to show the pattern of economic interdependence, and principal components analysis, vector autoregressions, and spectral analysis to explore the possibility of a unique ASEAN business cycle. Binational VARs are used to examine the relative impacts of each country upon the others. Spectral analysis is used to check for the possibility of “mode-locking” between the countries that may serve to bring about some synchronization. Interestingly, there is evidence of the existence of a specific ASEAN regional business cycle. However, the VARs give only weak evidence of transmission of business cycles among the ASEAN economies and between the ASEAN economies and their major trading partners. The apparent weakness of the transmission is explained by the fact that commodity price fluctuations, wars, and major political disturbances, due to the process of nation-building, have interrupted the natural generation of business cycles, dominated the interdependence effects between nations, and hindered the measurement of international business cycle transmission. J. Japan. Int. Econ., September 1999, 13(3), pp. 230–253. Department of Economics, Old Dominion University, Norfolk, Virginia 23529 Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: F41, F47, E32.     

The impact of intra-industry trade on business cycle synchronization in East Asia

This paper empirically analyzes distinctions between intra- and inter-industry trade indices. The research indicates that the co-movements of business cycles are influenced more through the intra-industry trade channel than by the total volume of trade itself. As trade integration among Asian countries increased, business cycle synchronization among these countries was expected to expand through trade transmission. Inter-industry trade resulting in higher specialization will induce less synchronized business cycles, while intra-industry trade could lead to increased business cycle synchronization. Moreover, I find that increased business cycle synchronization, as one of the optimum currency area criteria, is overemphasized.     

The driving forces of China's business cycles: Evidence from an estimated DSGE model with housing and banking

We study the approximate sources of China's business cycles in an estimated dynamic stochastic general equilibrium (DSGE) model with housing and banking. The model replicates well the volatility and cyclicality of key macroeconomic variables observed in the past two decades in China. A host of shock decomposition exercises demonstrate that, among the shocks being considered, both financial and housing shocks are driving China's business cycles, accounting for a particularly large fraction of the variance in most macroeconomic and financial variables at the business cycle frequencies. In particular, the capital quality, housing demand, and loan-to-value shocks display prominent contributions to the business cycle fluctuations. Moreover, there exists substantial interactions between the banking and housing sectors in China, where the collateral constraint and the financial constraint amplify with each other. The results shed new light in the understanding of China's business cycles, and may serve as a useful benchmark for future quantitative analyses of China's macroeconomic fluctuations using DSGE frameworks.     

The impact of technology shocks on the Japanese business cycle—An empirical analysis based on Japanese industry data

In order to investigate the impacts of technology shocks on the recent Japanese business cycles, we construct an aggregate technological measure from industry-based data. Our approach is to estimate production function by industry, by controlling for the returns to scale factor and unobserved factor utilization. We find that positive technology shocks result in a contraction of labor input on impact. This result implies that the standard real business cycle (RBC) model is not supported and the new Keynesian model or the labor reallocation model is a candidate to explain the Japanese business cycles. From further empirical studies, we find that the labor reallocation model is plausible for explaining the Japanese business cycles.     

Business Cycle Synchronisation with(in) the Euro Area: in Search of a ‘Euro Effect’

This paper studies business cycle synchronisation and convergence in the euro area. A set of stylised facts concerning the characteristics of the business cycle and synchronisation in the euro area is derived. It is analysed whether convergence or divergence patterns between the euro area countries changed after the introduction of the euro. In addition, a closer look is taken at the degree of business cycle synchronisation between other, i.e. non-euro area countries and the euro area average. Furthermore, a dynamic correlation analysis is carried out to broaden the scope of business cycle synchronisation further. We enrich the study with a frequency domain analysis and use the concepts of coherence, dynamic correlation and phase. Our main results are (i) that the synchronisation of business cycles in the euro area is fairly high, and (ii) that the introduction of the euro in 1999 does not seem to have generated a very strong—neither positive nor negative—impact on synchronisation. Coherence and dynamic correlation among the euro area countries, the UK, Japan and the US are also fairly high, reminding of the importance of synchronisation with the global business cycle.     

Have the Eurozone economies converged on a common European cycle?

The dating of a possible European business cycle has been inconclusive. At this stage, there is no consensus on the existence of such a cycle, or of its periodicity and amplitude, or of the relationship of individual member countries to that cycle. Yet convergence to a common cycle is the key consideration for a successful economic performance in any currency union. The confusion over whether and to what degree the Eurozone countries are converging on a common cycle is one example of this lack of consensus. In general, countries may vary in the components and characteristics that make up their output cycles; and also in their position around the output cycle at each point of time. In this paper we show how to decompose a business cycle into a time–frequency framework. This then allows us to decompose movements in output, at the European level and in member countries, into the component cycles and permits us to see how those component cycles (and the coherence between them) have varied in importance and cyclical characteristics over time. That in turn allows us to determine if the inconclusive convergence results obtained in the past have appeared because member countries have some cycles in common—but diverge at other cycles as a result of the asymmetric transmission of shocks, or external factors, or country specific shocks.     

How Pervasive is the World Business Cycle?

The paper tries to establish whether business-cycle synchronization across countries is due to a single world business cycle, to a diversity of regional business cycles or a combination of both. The methodology used does not impose any prior hypothesis about the existence of a business cycle with a specific regional composition. If regional business cycles exist, the regional composition would be estimated from the data used and the countries will form a region. The results indicate that there are four common components, but none specific to a geographical or cultural region. The only division found is between high and middle income countries. However inside these groups we can find some sets of countries that have a high degree of commovement. We will call these last groups clusters.     

The European business cycle

This paper deals with the existence and identification of acommon European growth cycle. Univariate Markov switching autoregressionsare used for individual countries in order to detect changesin the mean growth rate of industrial production. A Markov switchingvector autoregression model is then used to identify a commoncycle in Europe. Three important results are obtained: we finda common unobserved component governing European business cycledynamics, suggesting the existence of a common business cycle;we propose a dating of the business cycle, both for an indexof industrial protection and GDP, and both chronologies appearto be consistent; and finally we retrieve an important set ofstylized facts and relate these with those reported for theUS. Finally two further issues are investigated: first, thecontribution of the European business cycle to the individualcountry cycles; and second, we undertake an impulse responseanalysis to investigate the response of each individual countryto European expansions and recessions.     

THE PROPERTIES OF CYCLES IN SOUTH AFRICAN FINANCIAL VARIABLES AND THEIR RELATION TO THE BUSINESS CYCLE

The paper describes cyclicality in a range of local and international financial variables and their relation to cyclical behaviour in the South African real economy. Cycles are derived using a dating algorithm similar to that used to determine business cycle turning points and falls within the Burns‐Mitchell tradition of business cycle analysis. Co‐movement between phases in financial variables and similar phases in the business cycle are described using the concordance statistic, instead of the correlation statistic (which requires stationarity). This is a preliminary step in identifying financial variables that can act as leading indicators of economic activity.     

Political Business Cycles and Endogenous Elections

Empirical research of political business cycles (PBCs) may suffer from endogeneity bias when incumbent governments have discretion to call for an early election. Using an instrumental variable (IV) routine on data from Japan and the U.K., we find strong evidence to support the notion that election timing is a function of the economy rather than the macroeconomy being driven by elections as assumed in PBC. In single-equation regressions, no evidence of political cycles are found, but Hausman tests suggest elections are endogenous in our regressions. A monetary cycle in Japan and an inflation cycle in the U.K. are uncovered through IV estimation.