Understanding the Evolution of World Business Cycles

36 Pages Posted: 3 Mar 2006

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Chris Otrok

University of Missouri; Federal Reserve Banks - Federal Reserve Bank of St. Louis

Charles H. Whiteman

Pennsylvania State University - Smeal College of Business

Date Written: November 2005

Abstract

This paper studies the changes in world business cycles during 1960-2003. We employ a Bayesian dynamic latent factor model to estimate common and country-specific components in the main macroeconomic aggregates of the Group of Seven (G-7) countries. We then quantify the relative importance of these components in explaining comovement in each observable aggregate over three distinct time periods: the Bretton Woods (BW) period (1960-72), the period of common shocks (1972-86), and the globalization period (1986-2003). The results indicate that the common (G-7) factor explains a larger fraction of output, consumption, and investment volatility in the globalization period than in the BW period. These findings suggest that the degree of comovement of business cycles in major macroeconomic aggregates across the G-7 countries has increased during the globalization period.

Keywords: International business cycles, globalization, transmission of macroeconomic fluctuations

JEL Classification: E32, F42, F41

Suggested Citation

Kose, M. Ayhan and Otrok, Christopher and Whiteman, Charles H., Understanding the Evolution of World Business Cycles (November 2005). IMF Working Paper No. 05/211, Available at SSRN: https://ssrn.com/abstract=888080

M. Ayhan Kose (Contact Author)

World Bank ( email )

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Washington, DC 20433
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Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

Christopher Otrok

University of Missouri ( email )

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Columbia, MO 65211
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

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Saint Louis, MO 63011
United States

Charles H. Whiteman

Pennsylvania State University - Smeal College of Business

University Park, PA 16802
United States
814-863-0448 (Phone)

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