Globalization, the Business Cycle, and Macroeconomic Monitoring
M. Ayhan Kose
Development Prospects Group at the World Bank
S. Borağan Aruoba
University of Maryland - Department of Economics
Marco E. Terrones
International Monetary Fund (IMF)
Francis X. Diebold
University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)
IMF Working Paper No. 11/25
We propose and implement a framework for characterizing and monitoring the global business cycle. Our framework utilizes high-frequency data, allows us to account for a potentially large amount of missing observations, and is designed to facilitate the updating of global activity estimates as data are released and revisions become available. We apply the framework to the G-7 countries and study various aspects of national and global business cycles, obtaining three main results. First, our measure of the global business cycle, the common G-7 real activity factor, explains a significant amount of cross-country variation and tracks the major global cyclical events of the past forty years. Second, the common G-7 factor and the idiosyncratic country factors play different roles at different times in shaping national economic activity. Finally, the degree of G-7 business cycle synchronization among country factors has changed over time.
Number of Pages in PDF File: 53
Keywords: Business cycles, Cross country analysis, Globalization, Group of seven
Date posted: February 7, 2011
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