DP7973 The First Global Recession in Decades

Author(s): Jean Imbs

Publication Date: September 2010

Keyword(s): Financial Linkages , International Business Cycle , Sub-Prime Crisis , Trade Linkages

JEL(s): E32 , F15 , F36 , F41

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP7973.asp

I use monthly data on industrial production to estimate the distribution of international business cycle correlations since the 1980's, with focus on the current turmoil. The degree of international correlation in national business cycles since the end of 2008 is unprecedented in three decades. From 2008M12, an upward shift in the cross-sectional distribution of cycles synchronization is sizeable and significant, especially between advanced economies. The magnitude of the shift is unprecedented in recent history, even relative to what happened since 1973 after alternative shocks with worldwide consequences. The shift does not arise because volatilities changed with the crisis. Both goods and assets trade have contributed to this synchronization. The (large and significant) synchronization amongst OECD economies is associated with financial openness. The (weaker) diffusion amongst developing economies tends to happen between trade partners.