Is There a Political Dimension on Business Cycle Synchronization?

Abstract

The study of the business cycle synchronization determinants has traditionally focused on economic variables disregarding aspects such as politics and elections. This paper intends to fill in this gap and test whether the political environment is also a relevant channel explaining the synchronization between countries. Using a synchronization index for panel data we find that government ideology affects synchronization. Simultaneous left-wing governments improve business cycle synchronization while the results for right-wing governments, although statistically weak, suggest the opposite effect. In some particular cases, also elections and cabinet changes are found to have a negative impact on synchronization. Furthermore, the role of the traditional economic variables is not altered by the inclusion of this new channel. © 2011 Blackwell Publishing Ltd.