Understanding the Evolution of World Business Cycles

Ayhan Kose, Christopher Otrok and Charles Whiteman

No 2005/211, IMF Working Papers from International Monetary Fund

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: WP; first period; country factor; economic activity; monetary policy; International business cycles; globalization; transmission of macroeconomic fluctuations; factor granger; globalization period; factor loading; world factor; Business cycles; Consumption; Factor models; Vector autoregression; Global (search for similar items in EconPapers)
Pages: 36
Date: 2005-11-01
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Citations: View citations in EconPapers (40)

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Journal Article: Understanding the evolution of world business cycles (2008)
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