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International business cycles: G7 and OECD countries

Author

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  • Marcelle Chauvet
  • Chengxuan Yu

Abstract

The progressive globalization of markets has sparked a worldwide interest in using economic indicators to analyze cyclical fluctuations. Governments and the private sector seeking to conduct their activities in light of both national and international economic conditions could benefit from international indicators that serve as a warning system to detect recessions in major economic partners and in industrialized countries as a whole. ; This article constructs just such a warning system. Using a Markov-switching dynamic factor model with a self-adjusting variable-bandwidth filter, the authors construct business cycle indicators for G7 countries and for an aggregate measure of output by twenty-nine member countries of the Organisation for Economic Co-operation and Development (OECD). The model yields probabilities of the current business cycle phase for each G7 country and for the aggregate OECD and G7 output measures and reveals a common cycle underlying the OECD countries that characterizes an international business cycle. ; The proposed filter sorts out minor contractions and estimates only major economic recessions and expansions, thereby minimizing the occurrence of false turning points. This quality is especially important for central banks that may want to adjust monetary policy only in the event of major recessions affecting a broad set of economic sectors.

Suggested Citation

  • Marcelle Chauvet & Chengxuan Yu, 2006. "International business cycles: G7 and OECD countries," Economic Review, Federal Reserve Bank of Atlanta, vol. 91(Q 1), pages 43-54.
  • Handle: RePEc:fip:fedaer:y:2006:i:q1:p:43-54:n:v.91no.1
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    Citations

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    Cited by:

    1. Marcelle Chauvet & Rafael R. S. Guimaraes, 2021. "Transfer Learning for Business Cycle Identification," Working Papers Series 545, Central Bank of Brazil, Research Department.
    2. Marcelle Chauvet, 2001. "The Brazilian Economic Fluctuations," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 033, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Golinelli, Roberto & Parigi, Giuseppe, 2014. "Tracking world trade and GDP in real time," International Journal of Forecasting, Elsevier, vol. 30(4), pages 847-862.
    4. Fabio Bagliano & Claudio Morana, 2010. "Business cycle comovement in the G-7: common shocks or common transmission mechanisms?," Applied Economics, Taylor & Francis Journals, vol. 42(18), pages 2327-2345.
    5. Catherine Doz & Anna Petronevich, 2017. "On the consistency of the two-step estimates of the MS-DFM: a Monte Carlo study," PSE Working Papers halshs-01592863, HAL.
    6. Di Caro, Paolo, 2014. "Regional recessions and recoveries in theory and practice: a resilience-based overview," MPRA Paper 60300, University Library of Munich, Germany.
    7. Rafael R. S. Guimaraes, 2022. "Deep Learning Macroeconomics," Papers 2201.13380, arXiv.org.
    8. Mitra, Sinchan & Sinclair, Tara M., 2012. "Output Fluctuations In The G-7: An Unobserved Components Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 16(3), pages 396-422, June.
    9. Alessandro Borin & Riccardo Cristadoro & Roberto Golinelli & Giuseppe Parigi, 2012. "Forecasting world output: the rising importance of emerging economies," Temi di discussione (Economic working papers) 853, Bank of Italy, Economic Research and International Relations Area.
    10. Michaelides, Panayotis G. & Papageorgiou, Theofanis, 2012. "On the transmission of economic fluctuations from the USA to EU-15 (1960–2011)," Journal of Economics and Business, Elsevier, vol. 64(6), pages 427-438.
    11. Silvia Palasca & Elisabeta Jaba, 2014. "Leading and Lagging Indicators Of the Economic Crisis," Romanian Statistical Review, Romanian Statistical Review, vol. 62(3), pages 31-47, September.

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