Inklaar, Robert Jong-A-Pin, Richard de Haan, Jakob
Year of Publication:
CESifo Working Paper 1546
This paper re-examines the relationship between trade intensity and business cycle synchronization for 21 OECD countries during 1970-2003. Instead of using instrumental variables, we estimate a multivariate model including variables capturing specialisation, financial integration, and similarity of economic policies. We confirm that trade intensity affects business cycle synchronization, but the effect is much smaller than previously reported. Other factors in our model have a similar impact on business cycle synchronization as trade intensity. Finally, we find that the effect of trade on business cycle synchronisation is not driven by outliers and does not suffer from parameter heterogeneity.
business cycles trade synchronization of business cycles