International Transmission of Business Cycles

Abstract

Increased international economic integration over the past two decades has stimulated a growing academic and policy interest in the analysis of the international transmission of business cycles. There has been renewed interest recently in this research topic notably in relation to the current global financial and economic crisis. In an increasingly integrated world economy, understanding the extent to which business cycles propagate across countries and regions and their underlying factors is highly important to investors and policy makers. Furthermore, in the case of monetary unions, business cycle synchronisation is taken as an indication of a low probability of asymmetric shocks and so of a low cost of losing independence over monetary and exchange rate policies. Fluctuations of economic activity at regional level are likely to be more important than at national level because regions trade relatively more than countries and specialisation at regional level is higher than at regional level.