Economic Cycles in Emerging and Advanced Countries - Synchronization, International Spillovers and the Decoupling Hypothesis-

This book, by using a new empirical investigation approach, contributes to the debate on “decoupling of Emerging Economies (EEs) from the Advanced Economies (AEs)” by addressing the following main questions: “Has the EEs’ vulnerability to external shocks (both real and credit shocks) coming from AEs changed over time? If so, has it grown or decreased, as the decoupling hypothesis claims?” Up until now decoupling theory has been empirically investigated by looking for some kind of structural break in the model’s coefficients identifiable at some point in the time (usually in the late 1980s). Such an approach is appropriate and effective if the object of study evolves discretely over time, namely as a break at certain point of time. However, if a gradual evolution over time is plausible, as may well be true in the case of decoupling, then it would be more appropriate to utilize an approach (as in this work) allowing for a gradual change in coefficients over time rather than for an abrupt break. Trough counterfactual experiments performed using a Time Varying Panel VAR model, the book shows that over the last thirty years the EEs have become less vulnerable to shocks spreading from the AEs. However, the EEs’ resilience to external shocks has changed in a non-progressive manner over time with phases of greater resilience followed by others of lower resilience and vice versa; this outlines a “wave-like” path, a new evidence which has not yet been analyzed in the economic literature.