The Australia-Asia Business Cycle Evolution

Title
The Australia-Asia Business Cycle Evolution
Publication Date
2011
Author(s)
Leu, Shawn
( author )
OrcID: https://orcid.org/0000-0002-3620-537X
Email: cleu@une.edu.au
UNE Id une-id:cleu
Sheen, Jeffrey
Editor
Editor(s): Yin-Wong Cheung, Vikas Kakkar & Guonan Ma
Type of document
Book Chapter
Language
en
Entity Type
Publication
Publisher
Emerald Group Publishing Limited
Place of publication
Bingley, United Kingdom
Edition
1
Series
Frontiers of Economics and Globalization
DOI
10.1108/s1574-8715(2011)0000009017
UNE publication id
une:20515
Abstract
We consider whether there has been a gradual decoupling of the Australian business cycle from its trading partners in Europe and North America and a closer convergence toward its trading partners in Asia. We set up a dynamic latent factor model to estimate common dynamic components or factors for the real GDP growth rate of 19 countries. From variance decomposition over the 1991-2009 sample, we find that a global factor contributed the most in explaining Australian output growth variations, followed by a European factor, an Asian factor, and finally a North American factor. However, the correlation between Australian output growth movements and the Asian business cycle factor evolved from negative and small to positive and large after 2002. The European and North American factors were negatively correlated with Australian output growth for most of the sample period before turning positive in the global financial crisis of 2007-2008. This evidence supports the hypothesis that the Australian economy has decoupled to some extent from Europe, was not much coupled with North America except insofar as the United States drove the global factor, and has increasingly become positively coupled with Asia.
Link
Citation
The Evolving Role of Asia in Global Finance, v.9, p. 287-309
ISBN
9780857247469
9780857247452
Start page
287
End page
309

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