Multivariate Business Cycle Synchronization in Small Samples

In this paper, we study the degree of business cycle synchronization by means of a small sample version of the harding and pagan's [journal of econometrics (2006) vol. 132, pp. 59–79] generalized method of moment test. We show that the asymptotic version of the test gets increasingly distorted in small samples when the number of countries grows large. However, a block bootstrapped version of the test can remedy the size distortion when the time series length divided by the number of countries t/n is sufficiently large. Applying the technique to a number of business cycle proxies of developed economies, we are unable to reject the null hypothesis of a non-zero common multivariate synchronization index for certain economically meaningful subsets of these countries.