IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Output Fluctuations in the G-7: An Unobserved Components Approach

  • Tara Sinclair


    (Department of Economics/Institute for International Economic Policy, George Washington University)

  • Sinchan Mitra


    (School of Economics, University of Queensland/ Discover Financial Services)

This paper contributes to the debate about the relative importance of permanent versus transitory disturbances as sources of variation in output across the G-7 countries. We employ a multivariate unobserved components model to simultaneously decompose the real GDP for each of the G-7 countries into their respective permanent and transitory components. In contrast to much of the related literature, our model allows for explicit interaction between the components both within and across series. This approach thus allows us to distinguish cross-country correlations driven by the relationships between permanent innovations from those between transitory movements. We find that fluctuations in output are primarily due to permanent movements for all of the G-7 countries. We also find that the correlation between the permanent and transitory innovations within each series is significantly negative. With regards to cross- country relationships, we find important idiosyncratic variation in the correlation across different country pairs.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2008-04.

in new window

Length: 33 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:gwi:wpaper:2008-04
Contact details of provider: Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
  2. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2007. "Common shocks, common dynamics, and the international business cycle," Economic Modelling, Elsevier, vol. 24(1), pages 149-166, January.
  3. James H. Stock & Mark W. Watson, 2005. "Understanding Changes In International Business Cycle Dynamics," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 968-1006, 09.
  4. Allan W. Gregory & Allen C. Head & Jacques Raynauld, 1994. "Measuring World Business Cycles," Working Papers 902, Queen's University, Department of Economics.
  5. Brian M. Doyle & Jon Faust, 2005. "Breaks in the Variability and Comovement of G-7 Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 721-740, November.
  6. Dan Ben-David & David H. Papell, 1997. "Slowdowns and Meltdowns: Postwar Growth Evidence from 74 Countries," NBER Working Papers 6266, National Bureau of Economic Research, Inc.
  7. Rob Luginbuhl & Siem Jan Koopman, 2004. "Convergence in European GDP series: a multivariate common converging trend-cycle decomposition," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 611-636.
  8. D. Doorn, 2006. "Consequences of Hodrick-Prescott filtering for parameter estimation in a structural model of inventory behaviour," Applied Economics, Taylor & Francis Journals, vol. 38(16), pages 1863-1875.
  9. G. Everaert, 2007. "Estimating Long-Run Relationships between Observed Integrated Variables by Unobserved Component Methods," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/452, Ghent University, Faculty of Economics and Business Administration.
  10. Arabinda Basistha, 2005. "Trend-Cycle Correlation, Drift Break and the Estimation of Trend and Cycle in Canadian GDP," Working Papers 05-07 Classification- JEL, Department of Economics, West Virginia University.
  11. Pierre Perron & Tatsuma Wada, 2005. "Let’s Take a Break: Trends and Cycles in US Real GDP," Boston University - Department of Economics - Working Papers Series wp2009-006, Boston University - Department of Economics, revised Feb 2009.
  12. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
  13. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
  14. Canova, Fabio & de Nicolo, Gianni, 2003. "On the sources of business cycles in the G-7," Journal of International Economics, Elsevier, vol. 59(1), pages 77-100, January.
  15. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  16. Timothy Cogley & James M. Nason, 1993. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series: implications for business cycle research," Working Papers in Applied Economic Theory 93-01, Federal Reserve Bank of San Francisco.
  17. Christoph Schleicher, 2003. "Structural Time-Series Models with Common Trends and Common Cycles," Computing in Economics and Finance 2003 108, Society for Computational Economics.
  18. 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.
  19. Margaret M. McConnell & Gabriel Perez-Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  20. Tara M. Sinclair, 2009. "The Relationships between Permanent and Transitory Movements in U.S. Output and the Unemployment Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 529-542, 03.
  21. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
  22. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  23. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, June.
  24. Tatsuma Wada & Pierre Perron, 2006. "State Space Model with Mixtures of Normals: Specifications and Applications to International Data," Boston University - Department of Economics - Working Papers Series WP2006-029, Boston University - Department of Economics.
  25. Terence C. Mills & Ping Wang, 2003. "Have output growth rates stabilised? evidence from the g-7 economies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 232-246, 08.
  26. James C. Morley, 2007. "The Slow Adjustment of Aggregate Consumption to Permanent Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 615-638, 03.
  27. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  28. J. Isaac Miller & Yoosoon Chang & Joon Y. Park, 2005. "Extracting a Common Stochastic Trend:Theories with Some Applications," Working Papers 0507, Department of Economics, University of Missouri, revised 18 Aug 2005.
  29. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  30. James C. Morley & Charles R. Nelson & Eric Zivot, 2003. "Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 235-243, May.
  31. Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, vol. 80(2), pages 199-221, October.
  32. Ralf Brueggemann & Helmut Luetkepohl, 2004. "A Small Monetary System for the Euro Area Based on German Data," Economics Working Papers ECO2004/24, European University Institute.
  33. Cogley, T., 1989. "International Evidence On The Size Of The Random Walk In Output," Working Papers 89-02, University of Washington, Department of Economics.
  34. Peter McAdam, 2007. "USA, Japan and the Euro Area: Comparing Business-Cycle Features," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 135-156.
  35. Marcelle Chauvet & Chengxuan Yu, 2006. "International business cycles: G7 and OECD countries," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 43-54.
  36. Adrian Pagan & Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 151-159.
  37. Christian J. Murray, 2003. "Cyclical Properties of Baxter-King Filtered Time Series," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 472-476, May.
  38. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:gwi:wpaper:2008-04. 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: (Kyle Renner)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.