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Globalization, the Business Cycle, and Macroeconomic Monitoring

By S. Borağan Aruoba, Francis X. Diebold, M. Ayhan Kose, Prepared S. Borağan Aruoba, Francis X. Diebold, M. Ayhan Kose, Marco E. Terrones and Jörg W. Decressin

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. We propose and implement a framework for characterizing and monitoring the global business cycle. Our framework utilizes high-frequency data, allows us to account for a potentially large amount of missing observations, and is designed to facilitate the updating of global activity estimates as data are released and revisions become available. We apply the framework to the G-7 countries and study various aspects of national and global business cycles, obtaining three main results. First, our measure of the global business cycle, the common G-7 real activity factor, explains a significant amount of cross-country variation and tracks the major global cyclical events of the past forty years. Second, the common G-7 factor and the idiosyncratic country factors play different roles at different times in shaping national economic activity. Finally, the degree of G-7 business cycle synchronization among country factors has change

Topics: Expansion, Contraction, Recession, Turning Point, Dynamic factor model, Nowcasting, Real-time analysis
Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.190.6351
Provided by: CiteSeerX
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