The Dynamics of Permanent and Transitory Components in International Business Cycles
AbstractThe paper investigates the dynamics of permanent and transitory components that are common across seven developed nations of the world. The common components are modeled to exhibit different behavior in the expansion and recession phases of international business cycles. I employ a multivariate unobserved components model with Markov regime switching to measure the common components of international time series. The model is estimated in its state-space representation by applying the Kalman filter and Kim’s (1994) approximate maximum likelihood algorithm. I find that, in contrast to individual country’s business cycles, the international business cycle does not exhibit classical contraction and expansion phases. The international permanent component has two phases: a high-growth phase and a low-growth phase, and there is no evidence of an international transitory component. I find that the switch from a high-growth regime to a low-growth regime occurs in the second quarter of 1973. There are no further switches that occur from one regime to another. I also find that among the seven developed nations examined, Japan is the most sensitive and Germany is the least sensitive to international permanent shocks.
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Bibliographic InfoPaper provided by University of Texas at Arlington, Department of Economics in its series Working Papers with number 0504.
Length: 28 pages
Date of creation: 2005
Date of revision:
international business cycle; nonlinear; Markov switching; unobserved components; G7;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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