Comovements in the Real Activity of Developed and Emerging Economies: A Test of Global versus Specific International Factors

Antoine Djogbenou

No 274718, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Although globalization has shaped the world economy in recent decades, emerging economies have experienced impressive growth compared to developed economies, suggesting a decoupling between developed and emerging business cycles. Using observed developed and emerging economy activity variables, we investigate whether the latter assertion can be supported by observed data. Based on a two-level factor model, we assume these activity variables can be decomposed into a global component, emerging or developed common component and idiosyncratic national shocks. We propose a statistical test for the null hypothesis of a one-level specification, where it is irrelevant to distinguish between emerging and developed latent factors against the two-level alternative. This paper provides a theoretical justification and simulations that document the testing procedure. An application of the test to a panel of developed and emerging countries leads to strong statistical evidence of decoupling.

Keywords: Financial Economics; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 37
Date: 2018-04
New Economics Papers: this item is included in nep-ecm
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Related works:
Journal Article: Comovements in the real activity of developed and emerging economies: A test of global versus specific international factors (2020)
Working Paper: Comovements In The Real Activity Of Developed And Emerging Economies: A Test Of Global Versus Specific International Factors (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274718

DOI: 10.22004/ag.econ.274718

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