NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Identifying the Common Component in International Economic Fluctuations

Robin L. Lumsdaine, Eswar S. Prasad

NBER Working Paper No. 5984
Issued in April 1997
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics

In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component in international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Based on correlations of individual country fluctuations with the common component, we find evidence for a `world business cycle' as well as evidence for a distinct European common component. We find few systematic differences in international business cycle relationships between the Bretton Woods and post-Bretton Woods periods.

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Document Object Identifier (DOI): 10.3386/w5984

Published: Lumsdaine, Robin L. and Eswar S. Prasad. "Identifying The Common Component Of International Economic Fluctuations: A New Approach," Economic Journal, 2003, v113(484,Jan), 101-127.

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