45 Pages Posted: 30 May 2001
Date Written: April 2002
In this paper, we develop 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 accommodates the dynamic propagation of shocks across countries. Based on correlations of individual country fluctuations with the common component, we find evidence for a "world business cycle" as well as evidence for a distinct European common component. We also find some evidence that macroeconomic fluctuations have become more closely linked across industrial economies in the period after 1973.
Keywords: Economic Fluctuations, International and European Business Cycles, Autoregressive Conditional Heteroskedasticity
JEL Classification: E32, C51, E37
Suggested Citation: Suggested Citation
Lumsdaine, Robin L. and Prasad, Eswar S., Identifying the Common Component of International Economic Fluctuations: A New Approach (April 2002). IZA Discussion Paper No. 487; IMF Working Paper No. 99/154. Available at SSRN: https://ssrn.com/abstract=270225