Common and Idiosyncratic Components in Real Output: Further International Evidence

Abstract

The ,;ews expressed in thlS Working Paper arc those of the author(s) and do not necessarily represent those of the IMF or IMF pollcy. Working Papers describe research in progress by the WP/02/229 authOr{ s) and are ublished to elicit comments und to further ~~~,"a!",e~. ________ ---.J This paper uses the classical (level) definition of business cycles to analyze the characteristicsduration, amplitude, steepness, and cumulative output movements-of the real GDP series of France, Germany, Italy, the rest of the euro area, and the United States. An index of concordance and its test statistic suggest a great deal of comovementlsynchronization between output cycles. Following that result, a dynamic factor model is estimated. Output fluctuations are mostly explained by a global common component and an euro area common component. However, idiosyncratic components also matter, especially for France, the rest of the euro area, and the United States.

France in the global economy: a structural approximate dynamic factor model analysis

“…The results suggest there may be some role for "regional factors" in explaining the error variance of French GDP, but that role can be tentatively considered small. This finding is broadly consistent with several studies pointing to a relatively minor role to regional factors (e.g., Kose, Otrok, and Whiteman, 2003;and Nadal De Simone, 2003). Summarizing all cross-spectrum results, the analysis indicates: (1) only the U.S. leads France in periodicities ranging between 8 quarters and 15 quarters;…”

“…Consumer confidence matters most for the transmission of U.S. supply shocks, while long-term interest rates matter most for the transmission of U.S. demand shocks. It is noteworthy that U.S. demand shocks explain over 80 percent of the error variance of French long-term interest rates, which supports the strong business cycles links between France and the U.S. found in earlier empirical work (Kose and others, 2003;Nadal De Simone, 2003). 17 Finally, while admittedly the variance share of the common components of stock prices is relatively low, their error variance following U.S. supply shocks is very large.…”

Synchronisation Between South Africa and the U.S.: A Structural Dynamic Factor Analysis

“…Nadal De Simone (2002) used a concordance index proposed by Harding and Pagan (2002) and the dynamic factor model of Stock and Watson (1991) to analyse synchronisation of output cycles between EU countries and the US. Results support the evidence of a global component as well as a regional component that explains comovement between European economies themselves and with the US.…”

Luxembourg: Selected Issues

“…However, given the variance that supply-side shocks introduce into estimates of potential output--as shocks to productivity interact with migration or commuting in a reinforcing manner--it might be more appropriate to focus on the average estimate for potential output growth over several decades. Both for the spliced 1960-2002ESA 79/95 and the 1981-2002 ESA 95 time series average potential growth rate amounts to about 4 percent. Nonetheless, a cause for concern is that potential output growth has declined by about one fifth (ESA 95 data) to one quarter (ESA 79 data) percentage point per annum since the peaks reached in the late 1980s or early 1990s.…”