On the Sources of Business Cycles in the G-7

Universitat Pompeu Fabra Working Paper No. 459

30 Pages Posted: 6 Nov 2000

See all articles by Fabio Canova

Fabio Canova

Bi norwegian business school

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 2000

Abstract

This paper examines sources of cyclical movements in output, inflation and the term structure of interest rates. It employs a novel identification approach which uses the sign of the cross correlation function in response to shocks to catalog orthogonal disturbances. We find that demand shocks are the dominant source output, inflation and term structure fluctuations in six of the G-7 countries. Within the class of demand disturbances, nominal shocks are dominant, but their importance declined after 1982. Furthermore, there are no significant differences in the proportion of term structure variability explained by different structural sources at different horizons.

Keywords: structural shocks, business cycles, demand disturbances, dynamic correlations, impulse responses

JEL Classification: C68, E32, F11

Suggested Citation

Canova, Fabio and De Nicolo, Gianni, On the Sources of Business Cycles in the G-7 (March 2000). Universitat Pompeu Fabra Working Paper No. 459. Available at SSRN: https://ssrn.com/abstract=230835 or http://dx.doi.org/10.2139/ssrn.230835

Fabio Canova (Contact Author)

Bi norwegian business school ( email )

Nydalsveien 37
Oslo, 0484
Norway

Gianni De Nicolo

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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