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France in the Global Economy

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Author Info

  • Francisco Nadal-De Simone
  • Alain N. Kabundi

Abstract

This study identifies the main shocks that cause fluctuations in French output and their channels of transmission. It uses a large-dimensional structural approximate dynamic factor model. There are three main findings. First, common shocks, especially demand shocks, which seem to originate from the U.S., play an important role in explaining French economic activity. While international trade, relative prices, and FDI flows are the main channels of transmission, the stock market, consumer confidence, and interest rates also matter. Second, France''s integration with the rest of the world has increased over time. Third, there is some tentative evidence of regional components in explaining French output fluctuations; countryspecific components also contribute. The predominance of exogenous factors affecting French output, the asymmetry in the transmission of shocks, and France''s participation in a currency area, argue for making French goods, services, and labor markets as flexible as possible.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/129.

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Length: 45
Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/129

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Related research

Keywords: Economic models; fixed capital formation; capital formation; balance of payments; terms of trade; fixed investment; consumption expenditure; business cycles; gross domestic product; current account balance; unemployment rate; final consumption expenditure; oil prices; business cycle; real gdp; transmission of shocks; international trade; trading partners; gnp; economic integration; trade flows; idiosyncratic shocks; real gnp; transmission of business cycles; world economy; foreign trade; current account surplus; investment flows; vertical integration; trade channels; factor analysis; sources of business cycles; trade patterns; business cycle fluctuations; economic growth; aggregate demand; optimum currency areas; real business cycles;

This paper has been announced in the following NEP Reports:

References

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  1. Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2009. "Opening The Black Box: Structural Factor Models With Large Cross Sections," Econometric Theory, Cambridge University Press, vol. 25(05), pages 1319-1347, October.
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  9. Francisco Nadal-De Simone, 2002. "Common and Idiosyncratic Components in Real Output," IMF Working Papers 02/229, International Monetary Fund.
  10. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Thomas J. Sargent & Mark W. Watson, 2007. "ABCs (and Ds) of Understanding VARs," American Economic Review, American Economic Association, vol. 97(3), pages 1021-1026, June.
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  20. repec:rus:hseeco:123092 is not listed on IDEAS
  21. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
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  23. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
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  26. Chamberlain, Gary, 1983. "Funds, Factors, and Diversification in Arbitrage Pricing Models," Econometrica, Econometric Society, vol. 51(5), pages 1305-23, September.
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