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Identifying the Common Component in International Economic Fluctuations; A New Approach

  • Robin L. Lumsdaine
  • Eswar Prasad

This paper develops an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Correlations of individual country fluctuations with the common component provide evidence of a “world business cycle” and a distinct European common component. The results suggest that macroeconomic fluctuations have become more closely linked across industrial economies in the post–Bretton Woods period.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/154.

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Length: 38
Date of creation: 01 Nov 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/154
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