Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 4 (2016), No. 1, Pages 39-57

DOI: 10.12735/jfe.v4i1p39

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The Effects of Global and Regional Shocks on Asian Business Cycle Synchronization

Rui Liu1 

1Department of Economics, San Jose State University, San Jose, USA

URL: https://doi.org/10.12735/jfe.v4i1p39

To Cite this Article     Article Views: 559     Downloads: 446  Since deposited on 2016-01-21

Abstract

This paper studies the evolution of the degree of Asian business cycle synchronization and assesses the impact of global and regional shocks on output interdependence across Asia since the 1990s. We employ a dynamic factor model to decompose output fluctuations into a global factor common to all countries in our sample, regional factors that capture any remaining common fluctuations across countries within each region, and an idiosyncratic component that captures country-specific characteristics. In particular, we categorize the 19 countries in our sample into four groups -- non-Asia, East Asia, South Asia and Southeast Asia, thereby accounting for heterogeneous dynamics of sub-regional co-movement. Results show that, over the past two decades, global shocks and regional shocks are playing a critical role in determining Asian output synchronization. As the process of globalization has picked up, both shocks increasingly explain the co-movement of output, which leads to a higher degree of business cycle synchronicity across Asia.

JEL Classifications: C11, E3

Keywords: Bayesian estimation; business cycle; dynamic factor; Markov Chain Monte Carlo (MCMC); shocks; co-movement

To Cite this Article: Liu, R. (2016). The effects of global and regional shocks on Asian business cycle synchronization. Journal of Finance and Economics, 4(1), 39-57. https://doi.org/10.12735/jfe.v4i1p39

Copyright © Rui Liu

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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The Effects of Global and Regional Shocks on Asian Business Cycle Synchronization
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