NBER Working Papers by Christopher Otrok

This paper analyzes the evolution of the degree of global cyclical interdependence over the period 1960-2005. We categorize the 106 countries in our sample into three groups -- industrial countries, emerging markets, and other developing economies. Using a dynamic factor model, we then decompose macroeconomic fluctuations in key macroeconomic aggregates -- output, consumption, and investment -- into different factors. These are: (i) a global factor, which picks up fluctuations that are common across all variables and countries; (ii) three group-specific factors, which capture fluctuations that are common to all variables and all countries within each group of countries; (iii) country factors, which are common across all aggregates in a given country; and (iv) idiosyncratic factors specific...

We examine the driving forces of G-7 business cycles. We decompose national business cycles into common and nation-specific components using a dynamic factor model. We also do this for driving variables found in business cycle models: productivity; measures of fiscal and monetary policy; the terms of trade and oil prices. We find a large common factor in oil prices, productivity, and the terms of trade. Productivity is the main driving force, with other drivers isolated to particular nations or sub-periods. Along these lines, we document shifts in the correlation of the G-7 component of each driver with the overall G-7 cycle.