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The international synchronisation of business cycles: the role of animal spirits

de Grauwe, Paul and Ji, Yuemei (2017) The international synchronisation of business cycles: the role of animal spirits. Open Economies Review. ISSN 0923-7992

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Identification Number: 10.1007/s11079-017-9434-3

Abstract

Business cycles among industrial countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits”, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We do not need a correlation of exogenous shocks to generate synchronization. We also empirically test the main predictions of the model.

Item Type: Article
Official URL: http://link.springer.com/journal/11079
Additional Information: © 2017 The Authors © CC BY 4.0
Divisions: European Institute
Subjects: H Social Sciences > HC Economic History and Conditions
Sets: Departments > European Institute
Date Deposited: 18 Jan 2017 15:26
Last Modified: 20 May 2019 02:22
Funders: Firstrun
URI: http://eprints.lse.ac.uk/id/eprint/68898

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