Assessing Aggregate Comovements in France, Germany and Italy. Using a Non Stationary Factor Model of the Euro Area
Olivier de Bandt
Banque de France - Economic Study and Research Division
Université Paris X Nanterre; Université Paris I Panthéon-Sorbonne
Natixis - NATIXIS Asset Management
June 1, 2006
Banque de France Working Paper No. NER-R 145
The objective of the paper is to investigate to what extent business cycles co-move in Germany, France and Italy. We use a large-scale database of non-stationary series for the euro area in order to assess the effect of common versus idiosyncratic shocks, as well as transitory versus permanent shocks, across countries over the 1980:Q1 to 2003:Q4 period. We apply the method-ology proposed by Bai (2004) and Bai and Ng (2004) to construct a coincident indicator of the euro area business cycle to which national developments appear to be increasingly correlated at business cycle frequencies (8 to 32 quarters), while more significant differences appear at lower frequencies which measures potential growth. The indicator is also shown to be related to extra euro area economic developments.
Number of Pages in PDF File: 40
Keywords: Factor Models, Non-Stationary Panel Data Models, Euro Area Business Cycles
JEL Classification: C12, C22
Date posted: October 27, 2010
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