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Common and Country-specific Fluctuations in Productivity, Investment, and the Current Account

Author

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  • Allan W. Gregory
  • Allen C. Head

Abstract

Dynamic factor analysis and Kalman filtering are used to construct a measure of common economic activity for the G7 countries. Common movements are important in productivity, but account for a substantially smaller share of movements in investment, and virtually none of the variation in the current accounts. For all seven countries, country-specific investment fluctuations have a significant negative impact on the current account, while country-specific productivity movements have little effect. A multi-country dynamic general equilibrium model is analyzed which is consistent with our qualitative findings. The model overstates, however, the quantitative importance of investment fluctuations for movements in the current account.

Suggested Citation

  • Allan W. Gregory & Allen C. Head, 1996. "Common and Country-specific Fluctuations in Productivity, Investment, and the Current Account," Working Papers 931, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:931
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_931.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    kalman filter; current account; Solow residual; investment; G7;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • 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

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