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International Business Cycles: World, Region, and Country-Specific Factors

  • M. Ayhan Kose
  • Christopher Otrok
  • Charles H. Whiteman

The paper investigates the common dynamic properties of business-cycle fluctuations across countries, regions, and the world. We employ a Bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates (output, consumption, and investment) in a 60-country sample covering seven regions of the world. The results indicate that a common world factor is an important source of volatility for aggregates in most countries, providing evidence for a world business cycle. We find that region-specific factors play only a minor role in explaining fluctuations in economic activity. We also document similarities and differences across regions, countries, and aggregates. (JEL F41, E32, C11, C32)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 4 (September)
Pages: 1216-1239

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1216-1239
Note: DOI: 10.1257/000282803769206278
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  1. Gregory, Allan W. & Head, Allen C., 1999. "Common and country-specific fluctuations in productivity, investment, and the current account," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 423-451, December.
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  10. Jean IMBS, 1998. "Co-Fluctuations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9819, Université de Lausanne, Faculté des HEC, DEEP.
  11. Allan W. Gregory & Allen C. Head & Jacques Raynauld, 1994. "Measuring World Business Cycles," Working Papers 902, Queen's University, Department of Economics.
  12. John F. Geweke, 1995. "Monte Carlo simulation and numerical integration," Staff Report 192, Federal Reserve Bank of Minneapolis.
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  17. Otrok, Christopher & Whiteman, Charles H, 1998. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 997-1014, November.
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  24. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  25. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  26. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(03), pages 409-431, August.
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  29. Riezman, R.G. & Whiteman, C.H., 1991. "World Business Cycles," Working Papers 91-26, University of Iowa, Department of Economics.
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