We examine the driving forces of G-7 business cycles. We decompose national business cycles into common and nation-specific components using a dynamic factor model. We also do this for driving variables found in business cycle models: productivity; measures of fiscal and monetary policy; the terms of trade and oil prices. We find a large common factor in oil prices, productivity, and the terms of trade. Productivity is the main driving force, with other drivers isolated to particular nations or sub-periods. Along these lines, we document shifts in the correlation of the G-7 component of each driver with the overall G-7 cycle.
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Length: Date of creation: Oct 2008 Date of revision: Handle: RePEc:nbr:nberwo:14380
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Find related papers by JEL classification: E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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