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Has the G7 business cycle become more synchronized ?

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  • Yoon
  • Jae Ho

Abstract

This paper adopts Friedman’s Plucking Markov Switching Model to decompose G7 real GDPs into common permanent components, common transitory components, infrequent Markov Switching negative shock and domestic idiosyncratic components. The findings show that the common components explain a 53.1% average volatility of G7 GDPs from 1960 to 2002. Despite the moderated volatility of G7 economies, the G7 business cycle (except Japan) has become more synchronized in its fluctuations. In addition, from the dynamic factor model with Markov switching, there appears to have been a common permanent synchronized fluctuation in the Euro-zone countries after 1984. The probability that the common transitory component is contracting, accords quite well with U.S recessionary dates.

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File URL: http://repec.org/esFEAM04/up.20890.1081930083.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 782.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:782

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Keywords: G7; GDP; business cycle; Friedman’s Plucking Markov Switching Model; permanent; transitory;

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  1. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
  2. Chang-Jin Kim & Jeremy Piger & Richard Startz, 2001. "Permanent and transitory components of business cycles: their relative importance and dynamic relationship," International Finance Discussion Papers 703, Board of Governors of the Federal Reserve System (U.S.).
  3. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  4. Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
  5. Campbell, John Y & Mankiw, N Gregory, 1987. "Are Output Fluctuations Transitory?," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 857-80, November.
  6. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
  7. Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers 4119, C.E.P.R. Discussion Papers.
  8. Clark, Peter K, 1987. "The Cyclical Component of U.S. Economic Activity," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 797-814, November.
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