This paper studies the effects of economic globalization characterized by increasing cross-border trade and financial flows on international business cycles. In doing so, this paper employs three-asymmetric-country dynamic general equilibrium models having multiple types of supply and demand shocks.
The main findings are as follows: First, the models designed for Japan-US-EU well replicate the basic properties of international business cycles. Second, international business cycle synchronization is determined not only by technology shocks but also by preference shocks. Preference shocks can solve the consumption correlation puzzle. Third, the simulations show quantitatively minor influences of globalization on cross-country business cycle synchronization.
