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

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  • Lumsdaine, Robin L.

    (Brown University)

  • Prasad, Eswar

    ()
    (Cornell University)

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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Bibliographic 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: 46 pages
Date of creation: Apr 2002
Date of revision:
Publication status: published in: Economic Journal, 2003, 113 (484), 101-127
Handle: RePEc:iza:izadps:dp487

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Related research

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

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References

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