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Is there really a Global Business Cycle? A Dynamic Factor Model with Stochastic Factor Selection

Tino Berger and Lorenzo Pozzi
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Tino Berger: University of Goettingen, Germany
Lorenzo Pozzi: Erasmus University Rotterdam, The Netherlands

No 16-088/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We investigate the presence of international business cycles in macroeconomic aggregates (output, consumption, investment) using a panel of 60 countries over the period 1961 - 2014. The paper presents a Bayesian stochastic factor selection approach for dynamic factor models with predetermined factors. The literature has so far ignored model uncertainty in these models as common factors (i.e., global, regional or otherwise) are typically imposed but not tested for. We focus in particular on the existence of a global business cycle as the literature has, in our opinion unjustifiably, taken for granted its existence. In contrast to the literature, we find no evidence to support its presence.

Keywords: Global business cycle; dynamic factor model; Bayesian; model selection (search for similar items in EconPapers)
JEL-codes: C32 C52 F44 (search for similar items in EconPapers)
Date: 2016-10-20
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-ore
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