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Understanding the Evolution of World Business Cycles

  • M. Ayhan Kose
  • Christopher Otrok
  • Charles H. Whiteman

This paper studies the changes in world business cycles during 1960-2003. We employ a Bayesian dynamic latent factor model to estimate common and country-specific components in the main macroeconomic aggregates of the Group of Seven (G-7) countries. We then quantify the relative importance of these components in explaining comovement in each observable aggregate over three distinct time periods: the Bretton Woods (BW) period (1960-72), the period of common shocks (1972-86), and the globalization period (1986-2003). The results indicate that the common (G-7) factor explains a larger fraction of output, consumption, and investment volatility in the globalization period than in the BW period. These findings suggest that the degree of comovement of business cycles in major macroeconomic aggregates across the G-7 countries has increased during the globalization period.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/211.

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Length: 36
Date of creation: 01 Nov 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/211
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