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

Author

Listed:
  • Robin L. Lumsdaine

    (Deutsche Bank and NBER Research Department, IMF)

  • Eswar S. Prasad

    (Deutsche Bank and NBER Research Department, IMF)

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 stylised 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. 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. Copyright Royal Economic Society 2003.

Suggested Citation

  • Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January.
  • Handle: RePEc:ecj:econjl:v:113:y:2003:i:484:p:101-127
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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