Business Cycle Linkages for the G7 Countries:Does the US Lead the World?

Denise Osborn, Pedro Perez () and Marianne Sensier ()

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: This paper empirically models the relationship between quarterly business cycle movements in the US and the other G7 countries, including an analysis of the US with a European (E15) aggregate. By using a nonlinear smooth transition vector autoregressive framework, the possibility of asymmetric business cycle linkages is explored. Statistical testing almost always rejects linearity, with the nonlinearity in the VAR generally associated with lagged annual US growth. To represent different types of possible business cycle linkages, three nonlinear VAR models are estimated for each country with the US, where these represent common business cycle regimes, US-led (but not common) regimes and country-specific (or idiosyncratic) regimes. In general, high annual US growth is found to lead to a distinct business cycle regime in other G7 countries compared with average or low US growth. Tests indicate that quarterly US growth patterns are important for other countries primarily in the lower regime, with domestic autoregressive lags then sometimes insignificant.

Pages: 31 pages
Date: 2005
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:50

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