Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

Hannes Böhm; Julia Schaumburg; Lena Tonzer

doi:10.1057/s41308-022-00173-9

Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

Hannes Böhm
, Julia Schaumburg
, Lena Tonzer^*

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

188 Downloads (Pure)

Abstract

We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.

Original language	English
Pages (from-to)	698-734
Number of pages	37
Journal	IMF Economic Review
Volume	70
Issue number	4
Early online date	19 Jun 2022
DOIs	https://doi.org/10.1057/s41308-022-00173-9
Publication status	Published - Dec 2022

Bibliographical note

Funding Information:
We thank two anonymous referees and Emine Boz, Michael Barkholz, Franziska Bremus, Michela Rancan, and Katheryn Russ for very helpful comments and discussions. Funding from the European Social Fund (ESF) of the European Commission is gratefully acknowledged by Lena Tonzer. Julia Schaumburg thanks the Dutch Science Foundation (NWO, grants VENI451-15-022 and VI.Vidi.191.169) for financial support. On behalf of all authors, the corresponding author states that there is no conflict of interest. All errors are solely our own responsibility.

Publisher Copyright:
© 2022, International Monetary Fund.

Funding

We thank two anonymous referees and Emine Boz, Michael Barkholz, Franziska Bremus, Michela Rancan, and Katheryn Russ for very helpful comments and discussions. Funding from the European Social Fund (ESF) of the European Commission is gratefully acknowledged by Lena Tonzer. Julia Schaumburg thanks the Dutch Science Foundation (NWO, grants VENI451-15-022 and VI.Vidi.191.169) for financial support. On behalf of all authors, the corresponding author states that there is no conflict of interest. All errors are solely our own responsibility.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Access to Document

10.1057/s41308-022-00173-9

Financial Linkages and Sectoral Business CycleFinal published version, 1.39 MBLicence: Article 25fa Dutch Copyright Act

Persistent URL (handle)

Persistent link

Cite this

@article{1e70fc1a27854c1da93546fe7809f27d,

title = "Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe",

abstract = "We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.",

author = "Hannes B{\"o}hm and Julia Schaumburg and Lena Tonzer",

note = "Funding Information: We thank two anonymous referees and Emine Boz, Michael Barkholz, Franziska Bremus, Michela Rancan, and Katheryn Russ for very helpful comments and discussions. Funding from the European Social Fund (ESF) of the European Commission is gratefully acknowledged by Lena Tonzer. Julia Schaumburg thanks the Dutch Science Foundation (NWO, grants VENI451-15-022 and VI.Vidi.191.169) for financial support. On behalf of all authors, the corresponding author states that there is no conflict of interest. All errors are solely our own responsibility. Publisher Copyright: {\textcopyright} 2022, International Monetary Fund.",

year = "2022",

month = dec,

doi = "10.1057/s41308-022-00173-9",

language = "English",

volume = "70",

pages = "698--734",

journal = "IMF Economic Review",

issn = "2041-4161",

publisher = "Palgrave Macmillan Ltd.",

number = "4",

}

TY - JOUR

T1 - Financial Linkages and Sectoral Business Cycle Synchronization

T2 - Evidence from Europe

AU - Böhm, Hannes

AU - Schaumburg, Julia

AU - Tonzer, Lena

N1 - Funding Information: We thank two anonymous referees and Emine Boz, Michael Barkholz, Franziska Bremus, Michela Rancan, and Katheryn Russ for very helpful comments and discussions. Funding from the European Social Fund (ESF) of the European Commission is gratefully acknowledged by Lena Tonzer. Julia Schaumburg thanks the Dutch Science Foundation (NWO, grants VENI451-15-022 and VI.Vidi.191.169) for financial support. On behalf of all authors, the corresponding author states that there is no conflict of interest. All errors are solely our own responsibility. Publisher Copyright: © 2022, International Monetary Fund.

PY - 2022/12

Y1 - 2022/12

N2 - We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.

AB - We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.

UR - https://www.scopus.com/pages/publications/85132353356

UR - https://www.scopus.com/pages/publications/85132353356#tab=citedBy

U2 - 10.1057/s41308-022-00173-9

DO - 10.1057/s41308-022-00173-9

M3 - Article

AN - SCOPUS:85132353356

SN - 2041-4161

VL - 70

SP - 698

EP - 734

JO - IMF Economic Review

JF - IMF Economic Review

IS - 4

ER -

Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

Abstract

Bibliographical note

Funding

UN SDGs

Access to Document

Persistent URL (handle)

Other files and links

Cite this