BUSINESS CYCLES IN BOSNIA AND HERZEGOVINA: CHRONOLOGY, VOLATILITY, AND SYNCHRONIZATION WITH THE BUSINESS CYCLES OF ITS MAJOR TRADING PARTNERS

Abstract

This paper examines the chronology, volatility, and synchronization of business cycles in Bosnia and Herzegovina over the period 2000Q1-2025Q1, with a particular focus on their relationship with the cycles of the country’s main foreign trade partners. Real gross domestic product is used as the primary indicator of aggregate economic activity. To eliminate seasonal fluctuations, the X13-ARIMA procedure is applied. The cyclical component of output is extracted using two complementary non-parametric filters, the Hodrick-Prescott filter and the Corbae-Ouliaris filter, allowing for robustness in cycle estimation. Business cycle turning points are identified using the Bry-Boschan Quarterly algorithm, which enables the construction of a consistent chronology of expansionary and recessionary phases for this transition economy. Volatility is measured as the standard deviation of the extracted cyclical components, while synchronization with partner economies is assessed using the Harding-Pagan Concordance Index and cross-correlation analysis. The empirical results indicate that business cycles in Bosnia and Herzegovina exhibit moderate volatility, broadly comparable to those observed in its main trading partner economies. Furthermore, the findings provide evidence of statistically meaningful co-movement and procyclicality, with the Bosnian and Herzegovinian business cycle showing moderate to strong synchronization with external cycles. These results suggest a significant degree of macroeconomic interdependence and external sensitivity of the domestic economy within its trade network.