IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/4119.html
   My bibliography  Save this paper

Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects

Author

Listed:
  • Monfort, Alain
  • Renne, Jean-Paul
  • Rüffer, Rasmus
  • Vitale, Giovanni

Abstract

This Paper analyses the co-movement in activity, measured by GDP and industrial production, between the G7 countries for the period 1972-2002. For that purpose, a dynamic factor model is estimated using Kalman Filtering techniques. In addition to separating common and country-specific - idiosyncratic - developments of output, we try to identify the causes underlying the observed co-movement: to what extent is it driven by common shocks and to what extent can cross-country/cross-area spill-over effects account for the observed co-movement? We find that the output developments in G7 countries are driven to a substantial extent by common dynamics. A significant part of the co-movement, especially in the first half of the sample, can be explained by developments in the price of oil, an important and easily identifiable common shock. The analysis suggests that, in addition, area-specific common factors play an important role, separating the sample into a North American (US, Canada) and a continental European (France, Germany, Italy) area, with the UK and Japan being somewhat separate from these areas. We find that developments in the North American factor have a strong lagged impact on the continental European factor, while the reverse is not true. Furthermore, the strength of the cross-area spillovers from America to Europe appears to have become stronger over the sample period, suggesting that international linkages have increased in the process of globalization.

Suggested Citation

  • Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers 4119, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4119
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4119
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Forni, Mario & Lippi, Marco, 2001. "The Generalized Dynamic Factor Model: Representation Theory," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1113-1141, December.
    2. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2004. "The generalized dynamic factor model consistency and rates," Journal of Econometrics, Elsevier, vol. 119(2), pages 231-255, April.
    3. Billio, M. & Monfort, A. & Robert, C. P., 1999. "Bayesian estimation of switching ARMA models," Journal of Econometrics, Elsevier, vol. 93(2), pages 229-255, December.
    4. Gregory, Allan W & Head, Allen C & Raynauld, Jacques, 1997. "Measuring World Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 677-701, August.
    5. Marianne Baxter & Alan C. Stockman, 1988. "Business Cycles and the Exchange Rate System: Some International Evidence," NBER Working Papers 2689, National Bureau of Economic Research, Inc.
    6. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
    7. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, vol. 45(1), pages 109-134, January.
    8. Brian M. Doyle & Jon Faust, 2002. "An investigation of co-movements among the growth rates of the G-7 countries," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 427-437.
    9. Gregory, Allan W. & Head, Allen C., 1999. "Common and country-specific fluctuations in productivity, investment, and the current account," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 423-451, December.
    10. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-380, October.
    11. Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 453-473.
    12. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    13. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-996, November.
    14. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-395, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    business cycles synchronization; Dynamic Factor; kalman filter;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F00 - International Economics - - General - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4119. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.