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Identifying the Common Component in International Economic Fluctuations

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  • Robin L. Lumsdaine
  • Eswar S. Prasad

Abstract

In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component in 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. 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 find few systematic differences in international business cycle relationships between the Bretton Woods and post-Bretton Woods periods.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5984.

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Date of creation: Apr 1997
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Publication status: published as Lumsdaine, Robin L. and Eswar S. Prasad. "Identifying The Common Component Of International Economic Fluctuations: A New Approach," Economic Journal, 2003, v113(484,Jan), 101-127.
Handle: RePEc:nbr:nberwo:5984

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  1. Forni, Mario & Reichlin, Lucrezia, 1995. "Dynamic Common Factors in Large Cross-Sections," CEPR Discussion Papers 1285, C.E.P.R. Discussion Papers.
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