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Wavelet variance and correlation analyses of output in G7 countries

Marco Gallegati () and Mauro Gallegati ()

Macroeconomics from University Library of Munich, Germany

Abstract: In this paper we apply the wavelets methodology to the analysis of the industrial production index of the G-7 countries between 1961:1-2005:5. The analysis is performed using a multi-scaling approach which decomposes the variance of the industrial production index and the covariance between the industrial production indices of two countries on a scale-by-scale basis through a non-orthogonal variant of the classical discrete wavelet transform, i.e. the maximal overlap discrete wavelet transform (MODWT). Wavelet variance analysis does not provide evidence of an international patterns of moderation in output volatility, as the moderation of output volatility occurred after the early eighties is confirmed only for the Euro-area countries plus Japan. Moreover, wavelet correlation analysis different correlation patterns at the different time-scale components and, that, with some exceptions, the linkages between countries are mostly significant only at the business cycle time scales, with the strongest relationships between the Anglo countries (particularly Canada and US), France and Germany, Japan and the Euro- zone countries, with Italy displaying the closest links with France.

Keywords: time-scale decomposition analysis; wavelets; business cycle fluctuations (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2005-12-27
Note: Type of Document - pdf; pages: 21
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Handle: RePEc:wpa:wuwpma:0512017