Trend and cyclical decoupling: new estimates based on spectral causality tests and wavelet correlations

The issue of decoupling of emerging market economies (EMEs) (especially in the Asian region) from the developments in advanced economies has become a subject of lively debate in recent years. Basically, decoupling seems to comprise three sub-hypotheses: (i) growth spillovers from advanced countries...

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Bibliographic Details
Published in:Applied economics 2013-11, Vol.45 (31), p.4419-4428
Main Authors: Nachane, Dilip, Dubey, Amlendu Kumar
Format: Article
Language:English
Subjects:
Asian region
Business cycles
Causality
China
Economic development
Emerging markets
Estimation
global crisis
India
spectral causality tests
Spillovers
trend and cyclical decoupling
wavelet correlations
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Summary:The issue of decoupling of emerging market economies (EMEs) (especially in the Asian region) from the developments in advanced economies has become a subject of lively debate in recent years. Basically, decoupling seems to comprise three sub-hypotheses: (i) growth spillovers from advanced countries to EMEs decreasing progressively in importance, (ii) business cycles in EMEs becoming less synchronized with those of the advanced world and (iii) strengthening of growth spillovers and cyclical synchronization among the EMEs as a group. The received literature fails to distinguish adequately between the trend and cyclical aspects of the decoupling relationship. We resort to two frequency domain methods (nonstationary spectral causality testing and wavelet correlations), which seem to offer a neat separation of trend and cyclical decoupling. Based on a sample of seven EMEs from the Asian region (including the two large EMEs - China and India), we uncover strong evidence favouring both trend and cyclical decoupling.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2013.788781