Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: This paper examines the synchronization of business cycles across the G7 countries during US recessions since the 1870's. Using a dynamic measure of business cycle synchronization, results depend on the globalisation period under consideration. On average, US recessions have significantly positive effects on business cycle co-movements only in the period following the breakdown of the Bretton Woods system of fixed exchange rates, while strongly decoupling effects among the G7 economies are documented during recessions that occurred under the classical Gold Standard. During the 2007-2009 recession, business cycles co-movements increased to unprecedented levels.

Keywords: Dynamic conditional correlation, Business cycle synchronization, Recession, Globalisation

JEL-codes: E3; E32; F4; F41; N10 April 2012

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