A Decomposition of Global Business Cycles Using Structural FAVAR (in Japanese)

The recent global recession triggered by the financial crisis in the United States seems to invalidate the hypothesis frequently heard prior to the crisis that other countries can "decouple" from the US economy. At the same time, though, the literature on international business cycles suggests that, from a longer-term perspective, the global synchronization of business cycles is becoming somewhat less pronounced, while on the other hand regional synchronization among the highly integrated economies of North America, Western Europe, and emerging Asia, as well as between North America and Western Europe on the one hand and emerging Asia on the other, appears to be increasing. This paper employs the structural FAVAR (structural factor-augmented vector autoregression) method to analyze factors affecting the business cycles of sixteen economies including the seven major developed and nine East Asian countries. Comparing these extracted shocks with empirically observed financial, productivity and natural resource price shocks reveals that all countries have been affected by soaring energy prices, especially in the 2000s. Another interesting feature to note is that the business cycles of East Asian economies are affected to a large extent by common factors, while those of the Euro zone countries are not. In East Asia, the observed business cycle synchronization appears to reflect the accumulation of technology (investment-specific technological change) embodied in capital goods traded vigorously in the region and also the fluctuation in the exchange rate of the Japanese yen vis--vis the US dollar, which has a close link to the competitiveness of their exports relative to Japanese exports. On the other hand, the synchronization of business cycles among developed countries arises through financial and total factor productivity (TFP) shocks.