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Business cycle synchronisation in East Asia: The role of value‐added trade
Author(s) -
Jiang Wei,
Li Yug,
Zhang Shajuan
Publication year - 2019
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12668
Subject(s) - economics , business cycle , volatility (finance) , exchange rate , bilateral trade , monetary economics , east asia , international economics , value (mathematics) , econometrics , macroeconomics , china , machine learning , political science , law , computer science
We empirically investigate the relationship between business cycle synchronisation and the role of value‐added trade focusing on a panel of 12 Asian countries from 1995 to 2011. In addition, we propose the inclusion of two novel determinants, for example external value‐added trade intensity and exchange rate volatility and also saturate our empirical model with other common determinants found in the literature. Our findings first confirm that value‐added trade intensity, rather than gross trade intensity, has a sizable, positive and statistically significant impact on synchronisation among East Asian countries. Second, the exchange rate volatility has a significant negative effect on the business cycle synchronisation, which verifies that the exchange rate volatility is another important determinant of business cycle synchronisation. Our findings have important implications for the monetary cooperation in the region: strengthening trade linkage could reduce the costs of monetary cooperation by increasing the incidence of symmetric shocks.