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Assessing Aggregate Comovements in France, Germany and Italy Using a Non Stationary Factor Model of the Euro Area

In: Convergence or Divergence in Europe?

Author

Listed:
  • Olivier Bandt

    (Banque de France)

  • Catherine Bruneau

    (University of Paris X, Thema)

  • Alexis Flageollet

    (University of Paris X, Thema)

Abstract

Summary The objective of the paper is to investigate to what extent business cycles co-move in Germany, France and Italy. We use a large-scale database of nonstationary series for the euro area in order to assess the effect of common versus idiosyncratic shocks, as well as transitory versus permanent shocks, across countries over the 1980:Q1 to 2003:Q4 period. We apply the methodology proposed by Bai (2004) and Bai and Ng (2004) to construct a coincident indicator of the euro area business cycle to which national developments appear to be increasingly correlated at business cycle frequencies, while more significant differences appear at lower frequencies which measures potential growth. The indicator is also shown to be related to extra euro area economic developments.

Suggested Citation

  • Olivier Bandt & Catherine Bruneau & Alexis Flageollet, 2006. "Assessing Aggregate Comovements in France, Germany and Italy Using a Non Stationary Factor Model of the Euro Area," Springer Books, in: Convergence or Divergence in Europe?, pages 95-120, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-32611-3_7
    DOI: 10.1007/3-540-32611-1_7
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    References listed on IDEAS

    as
    1. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64, Elsevier.
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    More about this item

    Keywords

    factor models; non-stationary panel data models; euro area business cycles;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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