published in: Economic Journal, 2003, 113 (484), 101-127
In this paper, we develop an aggregation procedure using time-varying weights for
constructing the common component of 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 accommodates 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 also find some evidence that macroeconomic fluctuations have become
more closely linked across industrial economies in the period after 1973.
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