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International confidence spillovers and business cycles in small open economies

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  • Michał Brzoza-Brzezina
  • Jacek Kotłowski

Abstract

The economic literature has for a long time been looking for explanations of a very strong international correlation of business cycles. This paper shows empirically that common fluctuations can to some degree be the effect of confidence shocks beeing transmitted internationally. We focus on a large (euro area) and a small, nearby economy (Poland). Our results show that euro area confidence fluctuations account for approximately 40-70% of business cycle fluctuations both in the euro area and in Poland. More importantly, their transmission happens not only via traditional channels (e.g. by confidence affecting euro area GDP and then Polish GDP via trade), but to a large extent occurs directly (e.g. by news spreading via media).

Suggested Citation

  • Michał Brzoza-Brzezina & Jacek Kotłowski, 2020. "International confidence spillovers and business cycles in small open economies," KAE Working Papers 2020-049, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2020049
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    Cited by:

    1. Michał Brzoza‐Brzezina & Jacek Kotłowski & Grzegorz Wesołowski, 2022. "International information flows, sentiments, and cross‐country business cycle fluctuations," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1110-1147, September.
    2. Gene Ambrocio, 2022. "Euro-area business confidence and COVID-19," Applied Economics, Taylor & Francis Journals, vol. 54(43), pages 4915-4929, September.
    3. repec:zbw:bofrdp:2021_004 is not listed on IDEAS
    4. Gene Ambrocio, 2022. "Euro-area business confidence and COVID-19," Applied Economics, Taylor & Francis Journals, vol. 54(43), pages 4915-4929, September.

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    More about this item

    Keywords

    International spillovers; animal spirits; sentiments; business cycle;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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