A Measure of Variability in Comovement for Economic Variables: a Time-Varying Coherence Function Approach

Abstract

In this paper, we suggest a different dynamic measure of comovement which is unlike previous studies allowing to test instability in comovement between two non stationary economic time series. We use the frequency approach, which is based on evolutionary spectral analysis, to estimate the Time-Varying Coherence Function (TVCF). Then we test stability in both cross-spectra and TVCF by detecting endogenously various break points in each function. Applying this new methodology to the GDP growth rate of the US and UK, we get an interesting result about period of business cycle convergence and divergence for these economies.Comovement, Spectral Analysis, Time Varying Coherence Function, Structural Change