Identifying the Common Component in International Economic Fluctuations: A New Approach

November 1, 1999

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Robin L. Lumsdaine, and Eswar S Prasad. Identifying the Common Component in International Economic Fluctuations: A New Approach, (USA: International Monetary Fund, 1999) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Correlations of individual country fluctuations with the common component provide evidence of a “world business cycle” and a distinct European common component. The results suggest that macroeconomic fluctuations have become more closely linked across industrial economies in the post–Bretton Woods period.

Subject: Business cycles, Econometric analysis, Economic growth, Economic sectors, Factor models, Industrial production, Industrial sector, Production, Production growth

Keywords: Autoregressive Conditional Heteroskedasticty, Business cycle volatility, Business cycles, Country size, Country-specific shock, Economic Fluctuations, Factor models, Global, Industrial production, Industrial sector, International and European Business Cycles, IP growth, IP index, Production growth, Shock to country, Shocks constant, Simple average, Technology shock, Time-varying weight, Weighting scheme, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/154
Stock No:

WPIEA1541999
ISBN:

9781451857214
ISSN:

1018-5941

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