Trade and Business-Cycle Comovement: Evidence from the EU

This paper is an empirical study of the determinants of business-cycle comovement. Using a panel of European countries (1972-2004) it is found that bilateral trade intensity is a robust determinant of real comovement in Europe, this confirming the seminal study by Frankel and Rose (1998). It is also found that convergence in macroeconomic policies (especially fiscal policies) is associated to high degree of intra-european business-cycle correlation. Moreover, having controlled for policy convergence, the effect of bilateral trade on business cycle comovement weakens on average by a factor of 36%-33% with respect to that estimated according to Frankel and Rose’s econometric specification, this suggesting the potential endogeneity of the set of instrumental variables adopted by the two authors (Gruben, Koo and Millis, 2002).

The co-movement between cotton and polyester prices

The authors examine the price linkages among polyester (the dominant chemical fiber), cotton (the dominant natural fiber), and crude oil (the dominant energy commodity), based on monthly data between 1980 and 2002. The modeling framework incorporates several aspects of the unit root econometrics literature. They find that: a) There is strong co-movement between cotton and polyester prices, well above the co-movement observed between these two prices and prices of other primary commodities. b) Crude oil prices have a stronger effect on polyester prices compared with cotton prices. c) Price shocks originating in the polyester market are transmitted at much higher speed to the cotton market than vice-versa.Markets and Market Access,Access to Markets,Textiles, Apparel&Leather Industry,Environmental Economics&Policies,Crops&Crop Management Systems

Determinants of Business Cycle Comovement: A Robust Analysis

This paper investigates the determinants of business cycle comovement between countries. Our dataset includes over 100 countries, both developed and developing. We search for variables that are robust' in explaining comovement, using the approach of Leamer (1983). Variables considered are (i) bilateral trade between countries; (ii) total trade in each country; (iii) sectoral structure; (iv) similarity in export and import baskets; (v) factor endowments; and (vi) gravity variables. We find that bilateral trade is robust. However, two variables that the literature has argued are important for business cycles industrial structure and currency unions are found not to be robust.

The Core, Periphery, and Beyond: Stock Market Comovements among EU and Non-EU Countries

We thank conference participants at the 2016 Financial Management Association and our discussant Fernando Moreira, and two anonymous referees for immensely helpful comments. We also thank Andrew Patton and James P. LeSage for sharing their MATLAB codes for computing quantile dependence. The authors of this paper are responsible for any errors or omissions. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or the authors\u27 colleagues on the staff of the Commission

International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility

We examine if the benefits of international portfolio diversification are robust to time-varying asset return volatility. Since diversified portfolios are subject to common cross-country shocks, we focus on the transmission mechanism of such shocks in the presence of regime-switching volatility. We find little evidence of incresaed market interdependence in turbulent periods. Furthermore, for the vast majority of time, we show that risk reduction is delivered for the US investor who holds foreign equitMarket comovement, International portfolio diversification, Financial market crises, Regime switching

The New York Stock Market in the 1920s and 1930s: Did Stock Prices Move Together Too Much?

In this paper, we re-examine the stock market of the 1920s and 1930s for evidence of a bubble, a 'fad' or 'herding' behavior by studying individual stock returns. One story often advanced for the boom of 1928 and 1929 is that it was driven by the entry into the market of largely uninformed investors, who followed the fortunes of and invested in 'favorite' stocks. The recent theoretical literature on how 'noise traders' perturb financial markets is consistent with this description. The result of this behavior would be a tendency for the favorite stocks' prices to move together more than would be predicted by their shared fundamentals. Our results suggest that there was excess comovement in returns even before the boom began, but comovement increased significantly during the boom and was a signal characteristic of the tumultuous market of the early 1930s. These results are thus consistent with the possibility that a fad or crowd psychology played a role in the rise of the market, its crash and subsequent volatility.

International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country

This paper documents stylized facts of international medium-term business cycles by exploring the pattern of comovement between a catching-up economy, Spain, and each of the obvious candidate countries to technological leadership of the 1950-2007 period, the U.S., France, Germany, Italy and the U.K. A remarkable feature of the international medium-term business cycle is the strong, positive lead displayed by the U.S. technology and terms of trade cycles over Spain's macroeconomic aggregates. The corresponding evidence when the counterpart to Spain is a large European economy is weaker, particularly in the case of Europe's medium-term technology cycles. Non-parametric tests results suggest that, over the medium-term cycle, a shift towards more economic integration may not necessarily be associated with increased international comovement.Medium-term business cycles; Stylized facts; International comovement; Technology diffusion.

Term Structure and the Estimated Monetary Policy Rule in the Eurozone

Published as an article in: Spanish Economic Review, 2008, vol. 10, issue 4, pages 251-277.NKM model, term structure, policy rule, indirect inference

A Measure of Variability in Comovement for Economic Variables : a Time-Varying Coherence Function Approach

In this paper, we test the instability of comovement, in time and frequency domain, for the GDP growth rate of the US and the UK. We use the frequency approach, which is based on evolutionary spectral analysis (Priestley, 1965-1996). The graphical analysis of the Time-Varying Coherence Function (TVCF) reports the existence of variability in correlation between the two series. Our goal is to estimate first the TVCF of the two series, then to test stability in both the cross-spectra density and in TVCF by detecting various breakpoints in each function.comovement ; spectral analysis ; time-varying coherence function ; structural change