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

Author

Listed:
  • Olivier de Bandt
  • Catherine Bruno
  • Alexis Flageollet

Abstract

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 non-stationary 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 method-ology 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 (8 to 32 quarters), while more significant diff rences 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 de Bandt & Catherine Bruno & Alexis Flageollet, 2006. "Assessing Aggregate Comovements in France, Germany and Italy. Using a Non Stationary Factor Model of the Euro Area," Working papers 145, Banque de France.
    • Handle: RePEc:bfr:banfra:145
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    References listed on IDEAS

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    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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