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Business Cycle Comovement in the G-7: Common Shocks or Common Transmission Mechanisms?

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  • Fabio C. Bagliano
  • Claudio Morana

Abstract

What are the sources of macroeconomic comovement among G-7 countries? Two main candidate explanations may be singled out: common shocks and common transmission mechanisms. In the paper it is shown that they are complementary, rather than alternative, explanations. By means of a large-scale factor vector autoregressive (FVAR) model, allowing for full economic and statistical identification of all global and idiosyncratic shocks, it is found that both common disturbances and common transmission mechanisms of global and country-specific shocks account for business cycle comovement in the G-7 countries. Moreover, spillover effects of foreign idiosyncratic disturbances seem to be a less important factor than the common transmission of global or domestic shocks in the determination of international macroeconomic comovements.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 40.

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Length: 38 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:cca:wpaper:40

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Keywords: business cycle comovement; factor vector autoregressive model; transmission mechanisms.;

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Cited by:
  1. Leif Anders Thorsrud, 2013. "Global and regional business cycles. Shocks and propagations," Working Papers 0012, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  2. Österholm, Pär & Stockhammar, Pär, 2014. "The Euro Crisis and Swedish GDP Growth — A Study of Spillovers," Working Paper 134, National Institute of Economic Research.
  3. Michaelides, Panayotis G. & Papageorgiou, Theofanis & Vouldis, Angelos T., 2013. "Business cycles and economic crisis in Greece (1960–2011): A long run equilibrium analysis in the Eurozone," Economic Modelling, Elsevier, vol. 31(C), pages 804-816.
  4. Michaelides, Panayotis G. & Papageorgiou, Theofanis, 2012. "On the transmission of economic fluctuations from the USA to EU-15 (1960–2011)," Journal of Economics and Business, Elsevier, vol. 64(6), pages 427-438.
  5. Guglielmo Maria Caporale & Alessandro Girardi, 2012. "Business Cycles, International Trade and Capital Flows: Evidence from Latin America," CESifo Working Paper Series 4006, CESifo Group Munich.

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