Business Cycle Synchronization between the European Union and Korea

In the recent 20 years, the capital flows between Korea and European Union have increased and diversified. In particular, the business cycles of two economies have shown similar patterns since the Global Financial Crisis. This study examines both trends and investigates the roles of finance and trade on business cycle co-movements between two economies. The empirical results show that the business cycles can diverge due to either the common shocks or the country-specific shocks. Furthermore, financial integration increases the business cycle co-movements driven by both the country-specific shocks and the common shocks between two economies.