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Business Cycle Linkages for the G7 Countries: Does the US Lead the World?


  • Denise R Osborn
  • Pedro J Perez
  • Marianne Sensier


This paper empirically models the relationship between quarterly business cycle movements in the US and the other G7 countries, including an analysis of the US with a European (E15) aggregate. By using a nonlinear smooth transition vector autoregressive framework, the possibility of asymmetric business cycle linkages is explored. Statistical testing almost always rejects linearity, with the nonlinearity in the VAR generally associated with lagged annual US growth. To represent different types of possible business cycle linkages, three nonlinear VAR models are estimated for each country with the US, where these represent common business cycle regimes, US-led (but not common) regimes and country-specific (or idiosyncratic) regimes. In general, high annual US growth is found to lead to a distinct business cycle regime in other G7 countries compared with average or low US growth. Tests indicate that quarterly US growth patterns are important for other countries primarily in the lower regime, with domestic autoregressive lags then sometimes insignificant.
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  • Denise R Osborn & Pedro J Perez & Marianne Sensier, 2005. "Business Cycle Linkages for the G7 Countries: Does the US Lead the World?," The School of Economics Discussion Paper Series 0527, Economics, The University of Manchester.
  • Handle: RePEc:man:sespap:0527

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    References listed on IDEAS

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    Cited by:

    1. Eickmeier, Sandra, 2007. "Business cycle transmission from the US to Germany--A structural factor approach," European Economic Review, Elsevier, vol. 51(3), pages 521-551, April.
    2. Gefang Deborah & Strachan Rodney, 2009. "Nonlinear Impacts of International Business Cycles on the U.K. -- A Bayesian Smooth Transition VAR Approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(1), pages 1-33, December.
    3. Erden, Lutfi & Ozkan, Ibrahim, 2014. "Determinants of international transmission of business cycles to Turkish economy," Economic Modelling, Elsevier, vol. 36(C), pages 383-390.
    4. Stephane Dees & Arthur Saint-Guilhem, 2011. "The role of the United States in the global economy and its evolution over time," Empirical Economics, Springer, vol. 41(3), pages 573-591, December.
    5. Konstantakis, Konstantinos N. & Michaelides, Panayotis G., 2014. "Transmission of the debt crisis: From EU15 to USA or vice versa? A GVAR approach," Journal of Economics and Business, Elsevier, vol. 76(C), pages 115-132.

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