Working Paper: NBER ID: w16264
Authors: S. Boragan Aruoba; Francis X. Diebold; M. Ayhan Kose; Marco E. Terrones
Abstract: 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 changed over time.
Keywords: Global business cycle; Macroeconomic monitoring; G7 countries
JEL Codes: E3; E6; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| G7 real activity factor (E23) | cross-country variation (R12) |
| common G7 factor (F53) | global economic activity (F69) |
| globalization (F60) | roles of common G7 factor and country-specific factors in shaping national economic activity (F62) |
| synchronization of G7 business cycles (F44) | common shocks and idiosyncratic shocks (D80) |
| increased trade and financial linkages (F65) | business cycle synchronization (F44) |