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A New Approach to Infer Changes in the Synchronization of Business Cycle Phases

Leiva-Leon, Danilo (2013): A New Approach to Infer Changes in the Synchronization of Business Cycle Phases.

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Abstract

This paper proposes a Markov-switching framework useful to endogenously identify regimes where economies enter recessionary and expansionary phases synchronously, and regimes where economies are unsynchronized following independent business cycle phases. The reliability of the framework to track synchronization changes is corroborated with Monte Carlo experiments. An application to the case of U.S. states reports substantial changes over time in the cyclical affiliation patterns of states. Moreover, a network analysis discloses a change in the propagation pattern of aggregate contractionary shocks across states, suggesting that regional economies in U.S. have become more interdependent since the early 90s.

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