Identifying the Common Component in International Economic Fluctuations

37 Pages Posted: 6 Sep 2000 Last revised: 9 Nov 2022

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); Tinbergen Institute

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: April 1997

Abstract

In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component in 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. 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 find few systematic differences in international business cycle relationships between the Bretton Woods and post-Bretton Woods periods.

Suggested Citation

Lumsdaine, Robin L. and Prasad, Eswar S., Identifying the Common Component in International Economic Fluctuations (April 1997). NBER Working Paper No. w5984, Available at SSRN: https://ssrn.com/abstract=225763

Robin L. Lumsdaine (Contact Author)

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