Motivation Literature Empirical methodology Result Conclusions Synchronization in Business Cycle of East Asian Economy: Evidences from Time-Varying Coherence Study Jean-Pierre ALLEGRET Essahbi ESSAADI GATE (CNRS, ENS LSH et Univ Lyon) GATE & UAQUAP (ISG, Univ. Tunis) September 2010 (Fothcoming ’Economic Modelling’ ) 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature Empirical methodology Result Conclusions Motivation Analysis of the integration process in East Asia Sharp increase in regional bilateral trade in the 90s The main driver of trade integration has been the so-called global production sharing (Rana, 2007 ; Haddad, 2007 ; and Haltmaier et al. , 2007). Regional institutional cooperation has improved after the 1997-98 crisis (Rana, 2007) Goal of the paper consider the critical role of trade integration in the process of economic integration The lower the business cycles synchronization between countries forming a monetary union, the higher the costs of this union. 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature General OCA Literature Empirical methodology OCA in East Asia Result Study Purpose Conclusions Optimum Currency Areas Importance cycle synchronization renouncing the use of monetary policy high cost if asymmetric shocks Frankel and Rose (1998) = ⇒ endogenous approach Monetary Union strengthen bilateral trade which in turn foster business cycle synchronization New economic geography integration can enhance specialization and hence the occurrence of asymmetric shocks 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature General OCA Literature Empirical methodology OCA in East Asia Result Study Purpose Conclusions Empirical studies for developed countries (Clark and van Wincoop, 2001) 1 Bilateral trade increases business cycle synchronization mainly intra-industry trade for developing countries (Calderon et al, 2007) 2 less convincing results more inter-industry trade Here : Is that the East Asian countries are similar to other emerging and developing countries (inter-industry trade) ? 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature General OCA Literature Empirical methodology OCA in East Asia Result Study Purpose Conclusions Literature 1 Analysis of correlations (Crosby, 2003 ; Shin and Wang, 2003 ; Rana, 2007). no clear evidence that comovements of GDP rose 2 Cointegration and approach in terms of common features (Zhang and Sato, 2005 and 2006 ; Sato, Allen, and Zhang, 2007). Some countries share both synchronous movements of real output in the short and long terms 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature General OCA Literature Empirical methodology OCA in East Asia Result Study Purpose Conclusions Literature 3 Decomposition of cycles in specific and common components Loayza et al. (2001) : Panel data / model with error components Both for the long-term trends and fluctuations in short, the sectoral effects predominate, which means the presence of common factors in cycles Chow and Kim (2003) : VAR Models Low importance of regional shocks in relation to specific shocks Lee et al. (2003), Moneta and Rüffer (2006), Lee and Azali (2006) : Dynamic factor models decompose the unobservable component production global, regional and specific Inconclusive ⇒ The literature on business cycle synchronization in East Asia does not lead to robust conclusions 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Literature General OCA Literature Empirical methodology OCA in East Asia Result Study Purpose Conclusions Purpose of the paper Analyze the feasibility of a monetary union in East Asia with a new approach TVCF (Time-Varying Coherence Function) Compared to the previous literature Decompose the analysis of comovements in distinguishing the components of short-term and long-term Analyze the dynamics of business cycle synchronization introduce a new measure of integration based on all the countries of the region and not on a particular country as a proxy to the regional fluctuation. Sample longer : 1975 Q 1 − 2007 Q 1 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Empirical methodology Our dynamic approach is better suited to the integration process of the EA from the European experience of integration in East Asia took place over a short period and it was carried more by the market (market-driven). Our approach revolves around three major points Evolutionary Spectral Analysis Estimating Cohesion Identification of structural breaks endogenously 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Presentation of the Spectral Analysis Evolutionary Spectral Analysis � π X t = − π A X ( w , t ) e iwt dZ X ( w ) Time serie X t 7 series dHX ( w , t ) , − π ≤ w ≤ π S X ( w , t ) = dw 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Presentation of the Spectral Analysis Static Coherence A 2 XY ( w j ) TVCF 2 XY ( w j ) = S X ( w j ) S Y ( w j ) 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Presentation of the Spectral Analysis Static Coherence A 2 XY ( w j ) TVCF 2 XY ( w j ) = S X ( w j ) S Y ( w j ) Dynamic Coherence (Essaadi and Boutahar, 2010) A 2 XY ( w j , t ) TVCF 2 XY ( w j , t ) = S X ( w j , t ) S Y ( w j , t ) 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Presentation of the Spectral Analysis Static Coherence A 2 XY ( w j ) TVCF 2 XY ( w j ) = S X ( w j ) S Y ( w j ) Dynamic Coherence (Essaadi and Boutahar, 2010) A 2 XY ( w j , t ) TVCF 2 XY ( w j , t ) = S X ( w j , t ) S Y ( w j , t ) 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Cohesion in East Asia Time-Varying Cohesion ∑ β ij ( t ) β ji ( t ) TVCF X i X j ( w , t ) i � = j Coh X i X j ( w , t ) = β ij ( t ) β ji ( t ) ∑ i � = j Extending the measurement of Croux et al,. (2001) : Temporal dimension (t) Appropiate to the non-stationary process ( TVCF X i X j ( w , t )) Weighting by bilateral trade ( β ij ) To take into account the respective influence of each country in the region 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Cohesion in East Asia Time-Varying Cohesion ∑ β ij ( t ) β ji ( t ) TVCF X i X j ( w , t ) i � = j Coh X i X j ( w , t ) = β ij ( t ) β ji ( t ) ∑ i � = j Extending the measurement of Croux et al,. (2001) : Temporal dimension (t) Appropiate to the non-stationary process ( TVCF X i X j ( w , t )) Weighting by bilateral trade ( β ij ) To take into account the respective influence of each country in the region 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
Motivation Presentation of the Spectral Analysis Literature Cohesion in East Asia Empirical methodology Stability test of TVCF Result Methodology Conclusions Cohesion in East Asia Time-Varying Cohesion ∑ β ij ( t ) β ji ( t ) TVCF X i X j ( w , t ) i � = j Coh X i X j ( w , t ) = β ij ( t ) β ji ( t ) ∑ i � = j Extending the measurement of Croux et al,. (2001) : Temporal dimension (t) Appropiate to the non-stationary process ( TVCF X i X j ( w , t )) Weighting by bilateral trade ( β ij ) To take into account the respective influence of each country in the region 6 th Eurostat Colloquium on Modern Tools for Business Cycle Analysis . Lux 2010 Jean-Pierre ALLEGRET Essahbi ESSAADI
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