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Domestic and International Influences on Business Cycle Regimes in Europe

  • M Sensier
  • M Artis
  • C R Birchenhall
  • D R Osborn

This paper examines the roles of domestic and international variables in predicting classical business cycle regimes in Germany, France, Italy and the UK over the period 1970 to 2001. A range of real and financial variables are used as leading indicators in domestic models, with these variables predicting regimes in Germany relatively well during the in-sample period to 1996, followed (in order) by the UK, Italy and France. Consideration of foreign variables leads to important roles for the composite leading indicators and interest rates of the US and Germany. The relative importance of these variables differs over countries, but overall they confirm the importance of international influences in the business cycles of these European countries. Three-months ahead post-sample forecasts are examined, with the international model for Germany correctly indicating recession during 2001.

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0202.

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Date of creation: 2002
Handle: RePEc:man:sespap:0202
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