Trade and Business Cycle Correlations in Asia-Pacific

Recent empirical studies challenge the traditional theory of optimum currency areas by arguing that a monetary union enhances trade and business cycle co-movements among its member countries sufficiently as to obviate the need for national monetary policy. This paper examines the empirical relationship between trade and business cycle correlations among thirteen Asia-Pacific countries, paying particular attention to the structural characteristics of their economies and other issues not explored fully in the literature. According to our result, although trade is relevant to the business cycles of individual countries, the main determinant of their international correlations is not the geographical structure of their trade but what they produce and export --more specifically the extent to which their output and exports are concentrated on electronic products.

Inflation targeting in Korea, Indonesia, Thailand, and the Philippines : the impact on business cycle synchronization between each country and the world

This paper empirically analyzes whether and to what extent the adoption of inflation targeting (IT) in Korea, Indonesia, Thailand and the Philippines has affected their business cycle synchronization with the rest of the world. By employing the dynamic conditional correlation (DCC) model developed by Engle (2002), we find that IT in Asia has little effect on international business cycle synchronization and the effect is positive in some of the countries, if any. These findings basically seem to be consistent with the evidence from relevant literature.

International real business cycles : a re-visit

It is well known that several quantitative properties of international real business cycle models with are at odds with the data. First, the cross-country correlations are much higher for consumption than for output, while in the data the opposite is true (the BKK puzzle). Second, cross-country correlations of employment and investment are negative, while in the data they are positive. This paper quantitatively shows that preferences with a zero income effect on labor supply help generate a correct cross-country correlation in employment even without any restrictions on financial markets. In a bond economy, a zero income effect in labor supply, combined with time-to-build investment, can generate a positive cross-country correlation in investment, and the BKK puzzle is also resolved when the inter-temporal elasticity of substitution in labor supply is low.

Growth-cycle nexus

This research sheds light on the negative correlation between economic growth and business cycle in less developed economies. Whereas many previous studies explain the negative correlation from a viewpoint in which business cycle affects economic growth, we attempt to present a hypothesis based on the other influence direction in which economic growth affects business cycle. We investigate the validity of the hypothesis using two methods: econometric analysis and numerical analysis. We find that the econometric analysis supports our hypothesis. The numerical analysis shows that the effect of the proposed hypothesis produces the negative correlation between economic growth and business cycle.