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Evidence on Common Feature and Business Cycle Synchronization in Mercosur

Carrasco-Gutierrez, Carlos Enrique and Reis Gomes, Fábio Augusto (2007): Evidence on Common Feature and Business Cycle Synchronization in Mercosur. Published in: Brazilian Review of Econometrics , Vol. 29, No. 1 (2009): pp. 37-58.

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The aim of this work is to analyze the business cycles of Mercosur member countries in order to investigate their degree of synchronization. The econometric model uses the Beveridge-Nelson-Stock-Watson multivariate trend-cycle decomposition, taking into account the presence of common features such as common trend and common cycle. Once the business cycles are estimated, their degree of synchronization is analyzed by means of linear correlation in time domain and coherence and phase in frequency domain. Despite the evidence of common features, the results suggest that the business cycles are not synchronized. This may generate an enormous difficulty to intensify Mercosur agreements.

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