The Sources of Fluctuations within and Across Countries

FRB Kansas City Research Working Paper No. 98-04

85 Pages Posted: 9 Feb 1999

See all articles by Todd E. Clark

Todd E. Clark

Federal Reserve Bank of Cleveland

Kwanho Shin

Korea University

Date Written: September 1998

Abstract

This paper reviews the evidence on the sources of business cycles within and across countries and the implications for the importance of borders in business cycles. A simple econometric model is presented and applied to within-U.S. and cross-country data in order to provide a framework for interpreting the literature. Using these estimates as a benchmark, data issues, alternative models, and still other approaches to quantifying sources of comovement are surveyed. Overall, the evidence suggests three general conclusions. First, common shocks are less important in international fluctuations than in within-country fluctuations. Second, region-specific shocks account for a larger share of variation in international data than in within-country data. Finally, industry-specific shocks, measured accurately, are a smaller source of variation internationally than within countries. The paper then argues that lowering economic borders among nations through pacts like EMU should make the sources of international fluctuations look somewhat more like the sources of within-country fluctuations, although the effects are uncertain.

JEL Classification: E32, F41, F42

Suggested Citation

Clark, Todd E. and Shin, Kwanho, The Sources of Fluctuations within and Across Countries (September 1998). FRB Kansas City Research Working Paper No. 98-04, Available at SSRN: https://ssrn.com/abstract=140283 or http://dx.doi.org/10.2139/ssrn.140283

Todd E. Clark (Contact Author)

Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States
216-579-2015 (Phone)

Kwanho Shin

Korea University ( email )

1 Anam-dong 5 ka
Sunbuk-Ku, Department of Economics
Seoul 136-701
Korea
82-2-3290-2220 (Phone)
82-2-3290-2719 (Fax)

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