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

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Author Info
Lumsdaine, Robin L. (Brown University and NBER)
Prasad, Eswar S. () (IMF Research Department and IZA, Bonn)

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Abstract

In this paper, we develop 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 accommodates the dynamic propagation of shocks across countries. Based on correlations of individual country fluctuations with the common component, we find evidence for a "world business cycle" as well as evidence for a distinct European common component. We also find some evidence that macroeconomic fluctuations have become more closely linked across industrial economies in the period after 1973.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 487.

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Length: 45 pages
Date of creation: Apr 2002
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Handle: RePEc:iza:izadps:dp487

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Related research
Keywords: economic fluctuations international and European business cycles autoregressive conditional heteroskedasticity

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Find related papers by 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

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References listed on IDEAS
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  6. James H. Stock & Mark W. Watson, 1992. "A Procedure for Predicting Recessions With Leading Indicators: Econometric Issues and Recent Experience," NBER Working Papers 4014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
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  29. Tamim Bayoumi & Eswar Prasad, 1996. "Currency Unions, Economic Fluctuations, and Adjustment - Some New Empirical Evidence," IMF Working Papers 96/81, International Monetary Fund.
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