International output synchronization at different frequencies

Abstract

This study investigates whether output comovement patterns across countries differ at varying frequencies and examines how trade and financial integration affect synchronization at different frequencies. Based on a frequency decomposition of real GDP growth using the bandpass filter, we construct measures for output synchronization at the business cycle and long-term frequencies for 296 country pairs out of 25 OECD countries. We find that bilateral trade intensity tends to be positively related, whereas bilateral portfolio holdings tend to be negatively related, to GDP synchronization, only at long-term frequencies. At the business cycle frequency, these relationships are not observed, suggesting that the effects of increased integration propagate rather slowly. Therefore, integration affects longer-term comovement, but not short-run cyclical comovement. Ultimately, these results highlight the importance of examining longer horizons beyond business cycle frequencies in measuring the international comovement of economic activity.