Question

International Business Cycle (BC) Synchronization: What are some of the characteristics of Business cycle that are synchronized? How do Business cycle across countries become synchronized? What are the mechanisms? Why may countries desire to have their Business cycle synchronized? What are some negative effects?

Answer 1

Characteristics of IBC which are synchronized as below:

• Economic growth is stronger when rest of world is growing strongly and vice versa
• Level of economic activity is always fluctuating in an economy
• Coomon shocks have heterogeneous effects across countries.

Business cycles are synchronized by financial linkages and adoption of common currency. Mechanisms generally used are free trade, single currency or single financial policy across regions.

Many countries do such like European Union to attract maximum advantage of currency and export regimes.

However downside risks like global reession in other country or fixed exchange rate or market volatility can cause serious repercussions withun donestic country as well which would relatively had economic prosperity.