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Economic Sentiment, International Interdependence and Output Dynamics in the G7


  • Garratt, Anthony

    (Warwick Business School, University of Warwick)

  • Lee, Kevin

    (University of Nottingham)

  • Shields, Kalvinder

    (Department of Economics, University of Melborne)


Output dynamics in the G7 are characterised using a Global VAR model of countries' actual outputs and survey-based measures of their expected outputs. A variance-decomposition method is applied to examine the importance of global-versus-national effects and of fundamentals-versus-sentiment effects in business cycle fluctuations. The first decomposition highlights the importance of global effects, with global and national effects explaining on average, 60% and 40% of the persistent movements in countries' output respectively. Fundamentals dominate in the second decomposition but the analysis finds a substantial role for sentiment which explains 30% of the persistent movements in output on average.

Suggested Citation

  • Garratt, Anthony & Lee, Kevin & Shields, Kalvinder, 2013. "Economic Sentiment, International Interdependence and Output Dynamics in the G7," EMF Research Papers 04, Economic Modelling and Forecasting Group.
  • Handle: RePEc:wrk:wrkemf:04

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    Cited by:

    1. Anthony Garratt & Kevin Lee & Kalvinder Shields, 2014. "Forecasting Global Recessions in a GVAR Model of Actual and Expected Output in the G7," Discussion Papers 2014/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

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