The impact of global financial crisis on business cycles in Asian emerging economies by Jarko Fidrmuc and Iikka Korhonen

Transcription

1 The impact of global financial crisis on business cycles in Asian emerging economies by Jarko Fidrmuc and Iikka Korhonen Discussion by Radhika Pandey National Institute of Public Finance and Policy, New Delhi September 14, 2009 Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 1 / by 18Ja

2 Motivation To examine the degree of business cycle synchronization of developed countries with those in emerging economies of China and India. To analyse the role of trade intensity as a determinant of business cycle synchronization of emerging Asian economies with the industrial countries. Whether the current global financial crisis has led to the coupling of business cycles in industrial and emerging economies. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 2 / by 18Ja

3 Techniques for describing business cycle correlation Moving correlation of quarter on quarter GDP growth rates for a four-year moving window. Dynamic correlation: to study co movements at business cycle frequencies. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 3 / by 18Ja

4 Key findings Business cycles in China and India have been very different from those of OECD countries. Trade is an important determinant of business cycle correlation between industrial economies and emerging Asian economies. Current global financial crisis has had similar effects on industrial economies and on emerging Asian economies. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 4 / by 18Ja

5 Key findings Non-Eurpoean OECD countries (USA, Korea, Israel and Japan) trading more intensively with China show higher short run correlations. Finland, Norway and Switzerland show higher short run correlation with Indian business cycle, even though their trade with India is quite modest. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 5 / by 18Ja

6 Data availability For all countries except India: For India: For India, the quarterly GDP is available from 1996 Q2 onwards. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 6 / by 18Ja

7 Moving correlations of selected countries with India USA Germany Japan Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 7 / by 18Ja

8 Cross correlation with industrial countries GDP: Period I ( ) Variables t-4 t-3 t-2 t-1 t t+1 t+2 t+3 1 Austria Belgium Denmark Germany Finland France UK Italy Netherland Portugal Sweden Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 8 / by 18Ja

9 Cross correlation with industrial countries GDP: Period I ( ) Variables t-4 t-3 t-2 t-1 t t+1 t+2 t+ 12 Switzerland Norway USA Canada Australia New.Zealand Israel Japan China Spain Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles inseptember Asian emerging 14, 2009 economies 9 / by 18Ja

10 Cross correlation with industrial countries GDP: Period II ( Q1) Variables t-4 t-3 t-2 t-1 t t+1 t+2 t+3 1 Austria * Belgium * Denmark * Germany * Finland * France * UK * Italy * Netherland * Portugal * Sweden * * indicates significant correlation Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 10 / by 18Ja

11 Cross correlation with industrial countries GDP: Period II ( Q1) Variables t-4 t-3 t-2 t-1 t t+1 t+2 t+ 12 Switzerland Norway * USA * Canada * Australia * New.Zealand * Israel Japan China Spain * Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 11 / by 18Ja

12 Spectral coherence of India with USA Squared coherency π 16 π 3 π 2 5π 8 3π 4 7π 8 π Frequency iscussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 12 / by 18Ja

13 Spectral coherence of India with Germany Squared coherency π 16 π 3 π 2 5π 8 3π 4 7π 8 π Frequency iscussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 13 / by 18Ja

14 Spectral coherence of India with Norway Squared coherency π 16 π 3 π 2 5π 8 3π 4 7π 8 π Frequency iscussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 14 / by 18Ja

15 Low coherence with Japan Squared coherency π 16 π 3 π 2 5π 8 3π 4 7π 8 π Frequency iscussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 15 / by 18Ja

16 Detrending debate Different detrending methods extract different types of business cycle information from the original series (Canova 1998). Uncritical use of mechanical detrending can induce spurious cycles (Harvey and Jaeger, 1993), (Harding and Pagan, 1999). For emerging market economies shocks to both trend and cycle are relevant for business cycle analysis. In emerging economies trend is the cycle (Aguiar and Gopinath 2004). Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 16 / by 18Ja

17 Detrending debate Different detrending methods extract different types of business cycle information from the original series (Canova 1998). Uncritical use of mechanical detrending can induce spurious cycles (Harvey and Jaeger, 1993), (Harding and Pagan, 1999). For emerging market economies shocks to both trend and cycle are relevant for business cycle analysis. In emerging economies trend is the cycle (Aguiar and Gopinath 2004). Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 16 / by 18Ja

18 Summary conclusions Indian GDP data is available from Significant synchronization of Indian business cycle with those of industrial economies irrespective of trade ties. Detrending of output may not be desirable for emerging economy like India. Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 17 / by 18Ja

19 Thank you Discussion by Radhika Pandey National Institute The ofimpact Publicof Finance globaland financial Policy, crisis Newon Delhi business () cycles in September Asian emerging 14, 2009 economies 18 / by 18Ja