Identifying the Common Component of International Economic Fluctuations: A New Approach

27 Pages Posted: 8 Mar 2003

See all articles by Robin L. Lumsdaine

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; Erasmus University Rotterdam (EUR) - Department of Econometrics; National Bureau of Economic Research (NBER)

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

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Abstract

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 stylised 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. 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.

Suggested Citation

Lumsdaine, Robin L. and Prasad, Eswar S., Identifying the Common Component of International Economic Fluctuations: A New Approach. The Economic Journal, Vol. 113, pp. 101-127, 2003. Available at SSRN: https://ssrn.com/abstract=376578

Robin L. Lumsdaine (Contact Author)

American University - Department of Finance and Real Estate ( email )

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Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management ( email )

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Cornell University - Department of Economics ( email )

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NBER ( email )

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IZA Institute of Labor Economics

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