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Permanent and Transitory Macroeconomic Relationships between China and the Developed World

Author

Listed:
  • Tara Sinclair

    () (Institute for International Economic Policy, George Washington University)

  • Yeuqing Jia

    () (Department of Economics, George Washington University/World Bank)

Abstract

The relationships between the economic fluctuations of the US and China, the largest developed and developing countries respectively, are very important not only to both countries but also to the world economy. This paper applies a two-country correlated unobserved components model to explore the relationships between the real output fluctuations for the US and China over the period 1978q1-2008q4. The model allows us to distinguish cross-country correlations driven by permanent movements, caused by real shocks such as changes in technology and institutions, from those due to transitory movements. We find that the two countries share approximately half of their permanent and transitory shocks. With information from the real output of China, the magnitude of estimated transitory components fluctuations of the US real GDP is larger, while the transitory component of Chinas real GDP does not change much with the addition of US information and other alternative external information sets such as real GDP of Hong Kong as well.

Suggested Citation

  • Tara Sinclair & Yeuqing Jia, 2010. "Permanent and Transitory Macroeconomic Relationships between China and the Developed World," Working Papers 2010-08, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2010-08
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pym Manopimoke, 2012. "Hong Kong Inflation Dynamics: Trend and Cycle Relationships with the U.S. and China," Working Papers 232012, Hong Kong Institute for Monetary Research.

    More about this item

    Keywords

    Unobserved Components; Business Cycles; Economic Growth;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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