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Is there really a Global Business Cycle? A Dynamic Factor Model with Stochastic Factor Selection

Listed author(s):
  • Tino Berger

    (University of Goettingen, Germany)

  • Lorenzo Pozzi

    (Erasmus University Rotterdam, The Netherlands)

Registered author(s):

    We investigate the presence of international business cycles in macroeconomic aggregates (output, consumption, investment) using a panel of 60 countries over the period 1961 - 2014. The paper presents a Bayesian stochastic factor selection approach for dynamic factor models with predetermined factors. The literature has so far ignored model uncertainty in these models as common factors (i.e., global, regional or otherwise) are typically imposed but not tested for. We focus in particular on the existence of a global business cycle as the literature has, in our opinion unjustifiably, taken for granted its existence. In contrast to the literature, we find no evidence to support its presence.

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    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 16-088/VI.

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    Date of creation: 20 Oct 2016
    Handle: RePEc:tin:wpaper:20160088
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