Identifying the Common Component in International Economic Fluctuations A New Approach

Abstract:     
This paper develops an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Correlations of individual country fluctuations with the common component provide evidence of a "world business cycle" and a distinct European common component. The results suggest that macroeconomic fluctuations have become more closely linked across industrial economies in the post-Bretton Woods period.

Number of Pages in PDF File: 38

Keywords: Economic Fluctuations International and European Business Cycles Autoregressive Conditional Heteroskedasticty

JEL Classification: E32 C51 E37

working papers series