Do the Asean countries have a common business cycle?

Abstract

This paper explores the nature and characteristics of business cycles for a group of five small open economies that comprise the Association of Southeast Asian Nations (ASEAN). Business cycles are generated as transitory fluctuations around a stochastic trend. The results show that there is qualified evidence of common business cycles among the ASEAN countries. Sources of common variation in cycles are explored by correlating ASEAN country cycles to cycles in the USA and Japan. The results show that US and Japanese cycles are a major cause of cycles in the ASEAN countries. Cointegration tests reveal a long‐run equilibrium relationship between US business and investment cycles and similar cycles in the ASEAN group of countries.