Working Paper: NBER ID: w14380
Authors: Mario J. Crucini; Ayhan Kose; Christopher Otrok
Abstract: 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.
Keywords: International business cycles; Dynamic factor model; G7 countries; Productivity; Oil prices; Fiscal policy; Monetary policy
JEL Codes: E3; E32; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity (O49) | G7 cycle (E10) |
| oil prices (L71) | G7 cycle (E10) |
| terms of trade (F14) | G7 cycle (E10) |
| common factors (productivity, oil prices, terms of trade) (E23) | G7 cycle (E10) |