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

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Author Info
Fabio C. Bagliano
Claudio Morana

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

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

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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    Other versions:
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    Other versions:
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