Assessing Aggregate Comovements in France, Germany and Italy. Using a Non Stationary Factor Model of the Euro Area

40 Pages Posted: 27 Oct 2010  

Olivier de Bandt

Banque de France - Economic Study and Research Division

Catherine Bruneau

Université Paris X Nanterre; Université Paris I Panthéon-Sorbonne

Alexis Flageollet

NATIXIS Asset Management

Date Written: June 1, 2006

Abstract

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.

Keywords: Factor Models, Non-Stationary Panel Data Models, Euro Area Business Cycles

JEL Classification: C12, C22

Suggested Citation

de Bandt, Olivier and Bruneau, Catherine and Flageollet, Alexis, Assessing Aggregate Comovements in France, Germany and Italy. Using a Non Stationary Factor Model of the Euro Area (June 1, 2006). Banque de France Working Paper No. NER-R 145. Available at SSRN: https://ssrn.com/abstract=1698158 or http://dx.doi.org/10.2139/ssrn.1698158

Olivier De Bandt (Contact Author)

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE
(33 1) 42 92 28 80 (Phone)
(33 1) 42 92 27 66 (Fax)

Catherine Bruneau

Université Paris X Nanterre ( email )

Room G301, Building G
92001 Nanterre Cedex, 92001
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Alexis Flageollet

NATIXIS Asset Management ( email )

21 Quai d'Austerlitz
Paris, 75013
France

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