Global business cycles synchronized by trade, shaping economies worldwide.
Business cycles in different countries are closely linked. A study created a model showing that trade openness and the volatility of trade flows are key factors in synchronizing international business cycles. Other country-specific shocks play a smaller role. The model also addresses the trade co-movement puzzle, showing a strong connection between trade and business cycle synchronization when considering trade cost dynamics and trade flow volatility. This suggests that understanding trade shocks is crucial for studying how business cycles move together globally.