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Identifying the Common Component in International Economic Fluctuations: A New Approach

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  • Robin L. Lumsdaine
  • Mr. Eswar S Prasad

Abstract

This paper develops an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Correlations of individual country fluctuations with the common component provide evidence of a “world business cycle” and a distinct European common component. The results suggest that macroeconomic fluctuations have become more closely linked across industrial economies in the post–Bretton Woods period.

Suggested Citation

  • Robin L. Lumsdaine & Mr. Eswar S Prasad, 1999. "Identifying the Common Component in International Economic Fluctuations: A New Approach," IMF Working Papers 1999/154, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/154
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    More about this item

    Keywords

    WP; time-varying weight; IP growth; simple average; weighting scheme; Economic Fluctuations; International and European Business Cycles; Autoregressive Conditional Heteroskedasticty; country size; business cycle volatility; technology shock; IP index; shocks constant; country-specific shock; shock to country; Industrial production; Production growth; Business cycles; Factor models; Industrial sector; Global;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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