Identifying the Common Component in International Economic Fluctuations
A New Approach

38 Pages Posted: 15 Feb 2006  

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; 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

Date Written: November 1999

Abstract

This paper develops 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 captures the dynamic propagation of shocks across countries. Correlations of individual country fluctuations with the common component provide evidence of a "world business cycle" and a distinct European common component. The results suggest that macroeconomic fluctuations have become more closely linked across industrial economies in the post-Bretton Woods period.

Keywords: Economic Fluctuations International and European Business Cycles Autoregressive Conditional Heteroskedasticty

JEL Classification: E32 C51 E37

Suggested Citation

Lumsdaine, Robin L. and Prasad, Eswar S., Identifying the Common Component in International Economic Fluctuations A New Approach (November 1999). IMF Working Paper, Vol. , pp. 1-38, 1999. Available at SSRN: https://ssrn.com/abstract=880681

Robin L. Lumsdaine (Contact Author)

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

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Eswar S. Prasad

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

440 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
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NBER ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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