  The major study by Bordo and Helbing (2003) analyses the business cycle in
Western economies 1881-2001. They examine four distinct periods in economic
history, and conclude that there is a secular trend towards greater
synchronisation for much of the 20th century. Their analysis, in common with
the standard economic literature on business cycle synchronisation, relies upon
the estimation of an empirical correlation matrix of time series data of
macroeconomic aggregates. However because of the small number of observations
and economies, the empirical correlation matrix may contain considerable noise.
Random matrix theory was developed to overcome this problem. I use random
matrix theory, and the associated technique of agglomerative hierarchical
clustering, to examine the evolution of business cycle synchronisation between
the capitalist economies in the long-run. Contrary to the findings of Bordo and
Helbing, it is not possible to speak of a 'secular trend' towards greater
synchronisation over the period as a whole. During the pre-First World War
period, the cross-country correlations of annual real GDP growth are
indistinguishable from those which could be generated by a purely random
matrix. The periods 1920-38 and 1948-72 do show a certain degree of
synchronisation, but it is very weak. In particular, the cycles of the major
economies cannot be said to be synchronised. Such synchronisation as exists in
the overall data is due to meaningful co-movements in sub-groups. So the degree
of synchronisation has evolved fitfully. It is only in the most recent
1973-2006 period that we can speak meaningfully of anything resembling an
international business cycle.
