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Business cycles in Mexico and the United States: Do they share common movements?

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    Abstract

    In this document I apply a recently developed econometric technique to prove the existence of common movements between time series. Said methodology is used to test and measure the existence of common cycles between the economies of Mexico and the United States for the 1993-2001 period. It is found that both economies share a common trend and a common cycle. Also, given the existence of one common cycle between these economies, it is found that transitory shocks affecting Mexico’s GDP are more important than when a conventional trend-cycle decomposition methodology is applied. Finally, it is shown that there are efficiency gains in forecasting by considering the common cycle restriction in a bivariate vector error correction model that includes the Mexican and the U.S. GDPs.

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    Bibliographic Info

    Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

    Volume (Year): VII (2004)
    Issue (Month): (November)
    Pages: 303-323

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    Handle: RePEc:cem:jaecon:v:7:y:2004:n:2:p:303-323

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    Keywords: time series models; U.S. GDP; Mexican GDP;

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    1. Aldo A. Arnaudo & Alejandro D. Jacobo, 1997. "Macroeconomic homogeneity within Mercosur: An overview," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 12(1), pages 37-51.
    2. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 241-65, February.
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    4. Vahid, F. & Issler, J.V., 2001. "The Importance Of Common Cyclical Features in VAR Analysis: A Monte-Carlo Study," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 2/01, Monash University, Department of Econometrics and Business Statistics.
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    6. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(4), pages 393-95, October.
    7. Robert F. Engle & João Victor Issler, 1993. "Common trends and common cycles in Latin America," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 47(2), pages 149-176, April.
    8. Cubadda, Gianluca, 1999. "Common Cycles in Seasonal Non-stationary Time Series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(3), pages 273-91, May-June.
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    11. Hecq, Alain, 1998. "Does seasonal adjustment induce common cycles?," Economics Letters, Elsevier, Elsevier, vol. 59(3), pages 289-297, June.
    12. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(3), pages 449-475, June.
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    15. Hecq, Alain & Palm, Franz C & Urbain, Jean-Pierre, 2000. " Permanent-Transitory Decomposition in VAR Models with Cointegration and Common Cycles," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 62(4), pages 511-32, September.
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    Cited by:
    1. Louis, Rosmy J & Brown, Ryan & Balli, Faruk, 2009. "Are Mortgage Rates Bubbling Up Trouble for Canadas Metropolitan Housing Sector?," MPRA Paper 17245, University Library of Munich, Germany.
    2. Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?," Economic Modelling, Elsevier, Elsevier, vol. 28(6), pages 2701-2718.
    3. Willie Lahari, 2011. "Assessing Business Cycle Synchronisation - Prospects for a Pacific Islands Currency Union," Working Papers, University of Otago, Department of Economics 1110, University of Otago, Department of Economics, revised Oct 2011.
    4. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico," IMF Working Papers, International Monetary Fund 08/100, International Monetary Fund.
    5. HIRATA Hideaki & Ayhan KOSE & Christopher OTROK, 2013. "Regionalization vs. Globalization," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13004, Research Institute of Economy, Trade and Industry (RIETI).
    6. Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 50(3), pages 245-253, August.
    7. Ramón A. Castillo Ponce & Jorge Herrera Hernández, 2005. "Efecto del gasto público sobre el gasto privado en México," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 20(2), pages 173-196.
    8. Yan Sun & Wendell A. Samuel, 2009. "ECCU Business Cycles," IMF Working Papers, International Monetary Fund 09/71, International Monetary Fund.
    9. Ramon A. CASTILLO-PONCE & Maria de Lourdes RODRIGUEZ-ESPINOSA & Erika GARCIA-MENESES, 2011. "The Importance Of Macroeconomic Conditions On Remittances In The Long-Run And In The Short-Run: The Case Of Mexico," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 11(1).
    10. Ramon A. CASTILLO PONCE & Ramon de Jesus RAMIREZ ACOSTA, 2008. "Economic Integration In North America," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 8(2), pages 111-122.
    11. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Regionalization vs. globalization," Working Papers, Federal Reserve Bank of St. Louis 2013-002, Federal Reserve Bank of St. Louis.

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