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What are the driving forces of international business cycles?

  • Mario Crucini

    (Vanderbilt University)

  • Ayhan Kose

    (International Monetary Fund)

  • Christopher Otrok

    (University of Virginia)

We examine the driving forces of G-7 business cycles. We decompose national business cycles into common and nation-specific components using a dynamic factor model. We also do this for driving variables found in business cycle models: productivity; measures of fiscal and monetary policy; the terms of trade and oil prices. We find a large common factor in oil prices, productivity, and the terms of trade. Productivity is the main driving force, with other drivers isolated to particular nations or sub-periods. Along these lines, we document shifts in the correlation of the common component of each driver with the overall G-7 cycle. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2010.09.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 1 (January)
Pages: 156-175

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Handle: RePEc:red:issued:09-43
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