Business Cycle Synchronization and Volatility Shifts

This paper evaluates the impact of volatility shifts on different time varying period-by-period indexes which are used in the literature to study cross-country synchronization. Using GDP data for 22 OECD countries from 1970 to 2013 we show that when we take into account the volatility shifts the global synchronization evolution and the effect of the main determinants (trade and financial integration) differ from those obtained when we do not control for these shifts. Also, in terms of synchronization evolution over time, we unveil that the period from 1970-2013 can be split into three sub-periods. These periods are identified either by the evolution of cross-country synchronization or by the global level of economic volatility. Furthermore, the role of the main determinants also changes between the identified periods.