Krzysztof Beck Model of Two Economies and Results of the Research into Economic Cycles Synchronisation – Theoretical and Empirical Verification

Abstract

The main aim of this paper is to engage in a problem of unclear outcomes
of empirical research on business cycle synchronization. In order to achieve
that, the author presents a model of two economies, which provides very
clear tips on shock transmission mechanisms and necessary control variables
for the need of econometric evaluation. The presented model shows that
the impact of international trade transmission channel, approximated by
marginal propensity to consumption, is positive, but exhibits diminishing
influence of business cycle synchronization. This conclusion was reached
earlier by Silvestre, Mendonça and Passos (2007), and confirmed by the
author with the use of nonparametric methods. The model of two countries
has also proved that while analysing business cycle synchronization, control
is necessary because of the symmetry of shocks distribution, fiscal policy
correlation and exchange rate regime. Empirical verification with the use of
parametrical methods revealed correctness of the statements, as well as the
necessity of control due to monetary policy correlation. On this basis, the
author was able to explain the results reached by Baxter and Kouparitsas
(2004), as well as Böwer i Guillemineau (2006).