Impact of sub-national synchronization on the behavior of national business cycles in emerging economies with inflation targeting

Abstract

PurposeThe purpose of this paper is to assess sub-national business cycle (BC) synchronization's impact on national cycles in four emerging markets economies with inflation targeting (IT-EMEs): Brazil, Colombia, South Korea and Mexico.Design/methodology/approachThe authors use panel data models with fixed-effects and distributed lags.FindingsThe authors disclosed that sub-national synchronization increased national cycle amplitudes during expansion and recession phases. The authors also noticed that South Korea exhibited a more pronounced effect compared to Latin American countries, and this seemed to be associated with differences in the homogeneity of the production structures in the regions of these countries.Research limitations/implicationsThe authors cautioned that contrasting the findings with prior research on the effects of regional BC synchronization in IT-EMEs or with studies in different geographical contexts, is not possible due to the absence of prior research endeavors with this specific focus.Originality/valueThis study constitutes a first attempt to explain the impact of subnational cycle synchronization on the magnitude of national cycles in four IT-EMEs.