Common Fluctuations in OECD Budget Balances

24 Pages Posted: 19 Aug 2015 Last revised: 24 Jul 2019

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

David E. Rapach

Seattle University, Albers School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2015

Abstract

The authors use a dynamic latent factor model to analyze comovements in OECD surpluses. The world factor underlying common fluctuations in budget surpluses across countries explains an average of 28 to 44 percent of the variation in individual country surpluses. The world factor, which can be interpreted as a global budget surplus index, declines substantially in the 1980s, rises throughout much of the 1990s, peaks in 2000, and declines again after the financial crisis of 2008. The authors then estimate similar world factors in national output gaps, dividend-to-price ratios, and military spending that significantly explain the variation in the world budget surplus factor. Idiosyncratic components of national budget surpluses correlate with well-known "unusual" country circumstances, such as the Swedish banking crisis of the early 1990s.

JEL Classification: C32, E62, F42, H62

Suggested Citation

Neely, Christopher J. and Rapach, David E., Common Fluctuations in OECD Budget Balances (2015). Review, Vol. 97, Issue 2, pp. 109-132, 2015, Available at SSRN: https://ssrn.com/abstract=2646137

Christopher J. Neely (Contact Author)

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David E. Rapach

Seattle University, Albers School of Business and Economics ( email )

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Seattle, WA 98122
United States
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