This paper measures the impact of financial integration on business cycle synchronization\n(BCS) using a multivariate factorial approach. By allowing bilateral financial integration to\nload both on de facto quantity and price measures, positive and strong indirect effects of\nfinancial integration are found on BCS, running through real channels such as trade\nintegration and structural similarity. Financial integration has become the main driver of BCS,\nas the magnitude of the indirect effects greatly overrides the negative direct effect expected\nby standard theories. The results suggest that disentangling the financial channel in its direct\nand indirect effects is necessary for a comprehensive understanding of the complex dynamics\ngoverning economic integration processes such as currency areas and monetary unions
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