Capital mobility and the synchronization of business cycles: Evidence from the European Union | Zendy

Beck Krzysztof | Zendy

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Capital mobility and the synchronization of business cycles: Evidence from the European Union

Author(s) -

Beck Krzysztof

Publication year - 2021

Publication title -

review of international economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.513

H-Index - 58

eISSN - 1467-9396

pISSN - 0965-7576

DOI - 10.1111/roie.12536

Subject(s) - economics , business cycle , causality (physics) , monetary economics , capital (architecture) , value (mathematics) , foreign direct investment , investment (military) , financial integration , macroeconomics , synchronization (alternating current) , international economics , financial market , finance , channel (broadcasting) , history , physics , archaeology , quantum mechanics , machine learning , politics , computer science , political science , law , electrical engineering , engineering

Business cycle synchronization (BCS) is crucial for effective common monetary policy in the Eurozone. However, the impact of capital market integration on BCS is ambiguous in the literature. In this paper, we quantify the different channels through which capital mobility affects BCS, considering dynamic panel framework accounting for model uncertainty, reverse causality, and contagion. Four different channels are examined: exuberance of business cycles through short‐run flows, risk‐sharing‐induced specialization, international value chain integration resulting from foreign direct investment, and contagion. The results show that the overall impact of capital mobility on BCS is positive in the EU.

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