Assessing Aggregate Comovements in France, Germany and Italy. Using a Non Stationary Factor Model of the Euro Area

Olivier de Bandt, C. Bruneau and B. Flageollet

Working papers from Banque de France

Abstract: The objective of the paper is to investigate to what extent business cycles co-move in Germany, France and Italy. We use a large-scale database of non-stationary series for the euro area in order to assess the effect of common versus idiosyncratic shocks, as well as transitory versus permanent shocks, across countries over the 1980:Q1 to 2003:Q4 period. We apply the method-ology proposed by Bai (2004) and Bai and Ng (2004) to construct a coincident indicator of the euro area business cycle to which national developments appear to be increasingly correlated at business cycle frequencies (8 to 32 quarters), while more significant diff rences appear at lower frequencies which measures potential growth. The indicator is also shown to be related to extra euro area economic developments.

Keywords: Factor models; Non-stationary panel data models; Euro area business cycles. (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006
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Chapter: Assessing Aggregate Comovements in France, Germany and Italy Using a Non Stationary Factor Model of the Euro Area (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:145

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