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A Measure of Comovement for Economic Variables: Theory and Empirics

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  • Croux, Christophe
  • Forni, Mario
  • Reichlin, Lucrezia

Abstract

This paper proposes a measure of dynamic comovement between (possibly many) time series and names it cohesion. The measure is defined in the frequency domain and is appropriate for processes that are costationary, possibly after suitable transformations. In the bivariate case, the measure reduces to dynamic correlation and is related, but not equal, to the well-known quantities coherence and coherency. Dynamic correlation on a frquency band equals (static) correlation of band-pass filtered series. Moreover, long run correlation and cohesion relate in a simple way to cointegration. Cohesion is useful to study problems of business cycle synchronization, to investigate short-run and long-run dynamic properties of multiple time series, to identify dynamic clusters. We use state income data for the US and GDP data for European nations to provide an empirical illustration focused on the geographical aspects of business cycle fluctuations.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2339.

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Date of creation: Dec 1999
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Handle: RePEc:cpr:ceprdp:2339

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Keywords: Business Cycle; Coherence; Comovements; Geography;

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  1. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  2. Forni, Mario & Reichlin, Lucrezia, 1996. "Dynamic Common Factors in Large Cross-Sections," Empirical Economics, Springer, vol. 21(1), pages 27-42.
  3. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  4. Robert F. Engle & Sharon Kozicki, 1990. "Testing For Common Features," NBER Technical Working Papers 0091, National Bureau of Economic Research, Inc.
  5. Jeremy Berkowitz & Lutz Kilian, 1996. "Recent developments in bootstrapping time series," Finance and Economics Discussion Series 96-45, Board of Governors of the Federal Reserve System (U.S.).
  6. Todd E. Clark & Kwanho Shin, 1998. "The sources of fluctuations within and across countries," Research Working Paper 98-04, Federal Reserve Bank of Kansas City.
  7. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
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