Are Business Cycles in the US and Emerging Economies Synchronized?

Abstract

In this study, we use the tools of cross-spectral analysis and structural vector autoregression (SVAR) modelling to investigate whether there exists a significant link between the movement of the cyclical component of real GDP in developed and emerging economies. Specifically, we look at the United States and six emerging countries: Brazil, Chile, Korea, Malaysia, Mexico and Singapore. The simple answer to the question posed in the title of our article is no. Our results indicate that there exists no significant relationship between cyclical fluctuations in the US and emerging countries at business cycle frequencies. Although a statistically and economically significant link is detected in the past decade (the 2000s), it seems that it reflects mostly the severity of the 2008-2009 recession and its effects reverberating throughout the globe rather than a structural convergence between the developed and emerging world which could be expected to persist into the future. In general, both spectral methods and SVAR models suggest that over a long horizon, GDP cycles in the US and the emerging countries are not related.