Business Cycle Synchronization in Asia: The Role of Financial and Trade Linkages

Abstract

In this research project, we attempt to examine the behavior of business cycles in Asia in order to deepen our understanding of and expand research on this topic. Given the importance of the People’s Republic of China, Japan, and the United States in the region economy, we use these three economies as our “reference countries” to study the synchronization of their business cycles with other Asian economies of interest. In particular, we investigate the potential determinants underlying the synchronization of their business cycles, including trade linkages, financial linkages, and policy similarities. From our panel data analysis, we find empirical evidence of the impacts of trade channels, financial channels, and policy channels in determining the degree of their business cycle synchronization.