scispace - formally typeset

Journal ArticleDOI

A Measure of Comovement for Economic Variables: Theory and Empirics

01 May 2001-The Review of Economics and Statistics (MIT press journals)-Vol. 83, Iss: 2, pp 232-241

AbstractThis paper proposes a measure of dynamic comovement between (possibly many) time series and names it cohesion. The measure is defined in the frequency domain and is appropriate for processes that are costationary, possibly after suitable transformations. In the bivariate case, the measure reduces to dynamic correlation and is related, but not equal, to the well known quantities of coherence and coherency. Dynamic correlation on a frequency band equals (static) correlation of bandpass-filtered series. Moreover, long-run correlation and cohesion relate in a simple way to co-integration. Cohesion is useful to study problems of business-cycle synchronization, to investigate short-run and long-run dynamic properties of multiple time series, and to identify dynamic clusters. We use state income data for the United States and GDP data for European nations to provide an empirical illustration that is focused on the geographical aspects of business-cycle fluctuations.

Topics: Bivariate analysis (51%)

Summary (1 min read)

Jump to:  and [Summary]

Summary

  • Wkh phdvxuh lv gh qhg lq wkh iuhtxhqf| grpdlq dqg lv dssursuldwh iru surfhvvhv zklfk duh frvwdwlrqdu|/ srvvleo| diwhu vxlwdeoh wudqv0 irupdwlrqv1.
  • Frkhvlrq lv xvhixo wr vwxg| sureohpv ri exvlqhvv f|foh v|qfkurql}dwlrq/ wr lqyhv0 wljdwh vkruw0uxq dqg orqj0uxq g|qdplf surshuwlhv ri pxowlsoh wlph vhulhv/ wr lghqwli| g|qdplf foxvwhuv1.
  • Zh xvh vwdwh lqfrph gdwd iru wkh XV dqg JGS gdwd iru Hxurshdq qdwlrqv wr surylgh dq hpslulfdo looxvwudwlrq irfxvhg rq wkh jhrjudsklfdo dvshfwv ri exvlqhvv f|foh xfwxdwlrqv1 MHO Fodvvl fdwlrq=.

Did you find this useful? Give us your feedback

...read more

Content maybe subject to copyright    Report

i@thi Lu L4Li4i?| uLh ,UL?L4U V@h@M*itG
AiLh) @?_ ,4ThUt
ht|LTi hL
@hL 6Lh?
|
wUhi3@ +iU*?
}
Devwudfw
Nh|zrugv=
Exvlqhvv f|foh/ Vhfwrudo frpryhphqwv/ frkhuhqfh/ jhrjudsk|1
Wklv sdshu sursrvhv d phdvxuh ri g|qdplf frpryhphqw ehwzhhq
+
srvvleo| pdq|
,
wlph vhulhv dqg qdphv lw
frkhvlrq
1 Wkh phdvxuh lv ghqhg lq wkh iuhtxhqf| grpdlq
dqg lv dssursuldwh iru surfhvvhv zklfk duh frvwdwlrqdu|/ srvvleo| diwhu vxlwdeoh wudqv0
irupdwlrqv1 Lq wkh elyduldwh fdvh/ wkh phdvxuh uhgxfhv wr
g|qdplf fruuhodwlrq
dqg lv
uhodwhg/ exw qrw htxdo/ wr wkh zhoo nqrzq txdqwlwlhv
frkhuhqfh
dqg
frkhuhqf|
1 G|qdplf
fruuhodwlrq rq d iuhtxhqf| edqg htxdov
+
vwdwlf
,
fruuhodwlrq ri edqg0sdvv owhuhg vhulhv1
Pruhryhu/ orqj uxq fruuhodwlrq dqg frkhvlrq uhodwh lq d vlpsoh zd| wr frlqwhjudwlrq1
Frkhvlrq lv xvhixo wr vwxg| sureohpv ri exvlqhvv f|foh v|qfkurql}dwlrq/ wr lqyhv0
wljdwh vkruw0uxq dqg orqj0uxq g|qdplf surshuwlhv ri pxowlsoh wlph vhulhv/ wr lghqwli|
g|qdplf foxvwhuv1 Zh xvh vwdwh lqfrph gdwd iru wkh XV dqg JGS gdwd iru Hxurshdq
qdwlrqv wr surylgh dq hpslulfdo looxvwudwlrq irfxvhg rq wkh jhrjudsklfdo dvshfwv ri
exvlqhvv f|foh xfwxdwlrqv1
MHO Fodvvlfdwlrq=
H6/ F4
LhhitTL?_i?Ui __hittG ht|LTi hL c ,+,5c Df @i 6# +LLtii*|c h i**it
fDf i4@*G UUhL 9*M@UMi
Xqlyhuvlwh Oleuh gh Eux{hoohv/ HFDUHV
|
Xqlyhuvlw| ri Prghqd dqg FHSU
}
Xqlyhuvlwh Oleuh gh Eux{hoohv/ HFDUHV dqg FHSU1

W?|hL_U|L?
Aihi @hi ui i4ThU@* hi*@|L?t U @i |i t|@|t Lu Rt|)*3i_ u@U|t ? iUL?L4Ut
?i Lu |i4 t |@| 4@UhLiUL?L4U @}}hi}@|it UL4Li At LMtih@|L? @t Mii? |i
tLhUi Lu tTiU*@|L? Lu iUL?L4U |iLh) t?Ui |t Mh| W? 4L_ih? |iLhit Lu |i Mt?itt
U)U*i TiLT*i @i @t!i_ i|ih UL4Li4i?|t U@? Mi i T*@?i_ M) *@h}i @}}hi}@|i tLU!tc
4L?i|@h) Lh hi@*c Lh i|ih @? i T*@?@|L? tL*_ Mi uL?_ ? ?L?*?i@h ThLT@}@|L?
4iU@?t4t ,ih) 4@UhLiUL?L4U |i |MLL! t|@h|t M) @ t|@|i4i?| L? UL4Li4i?|t Mi|ii?
@}}hi}@|it OLiihc T@h@_L U@**)c |t t L?i Lu |i u@U|t |@| t *i@t| i** _LU4i?|i_
@?_ L? @| |ihi t 4Lhi UL?utL? Lu 4i@??} @?_ |ih4?L*L}) RL4Li4i?| t @
*Lti |ih4c TLttM*) _itUhM?} _gihi?| Ti?L4i?@ @?_c UL?ti^i?|*)c | 4@?) _gihi?|
?|ihThi|@|L?t `@| @hi hi@**) |i t|)*3i_ u@U|t @?_ @| tL*_ 4@UhLiUL?L4Ut Mi |h)?}
|L i T*@?q TThLTh@|i 4i@thit Lu UL4Li4i?| Mi|ii? |4i tihit ThLUittit tL*_
Mi _ii*LTi_ |L ThL_i @ 4i@??}u* @?tih |L |t ^it|L? Ai ?uLh4@* _tUttL?
L? UL4Li4i?|t t@**) hiuiht |L tL4i|?} U*Lti |L @ ?L|L? Lu ULhhi*@|L? OLiihc
|i |h@_|L?@* @) | U |i |4i tihit *|ih@|hi @t _i@*| | 4i@thi4i?| Lu
UL4Li4i?|t t M@ti_ L? @ ?L|L? Lu h@?! hi_U|L?
E
tii ? @?_ +i?ti*c bHH U @t
@ _gihi?| 4i@??} W? |t U@|i}Lh) Mi*L?}t |i _i@ Lu UL?|i}h@|L?
E
,?}*i @?_ Bh@?}ihc
bH.G |L ThLUittit @hi UL?|i}h@|i_ u |i tTiU|h@* _i?t|) @| uhi^i?U) 3ihL @t h@?!
L?ic UL_iTi?_i?Ui
E
BLhihL @?_ i@Ui**ic bb2c U hiuiht |L *?i@h UL4M?@|L?t Lu
ULhhi*@|i_ ThLUittit U @hi Lu *Lih @|Lhi}hitti Lh_ih |@? L|ihtc UL44L? ui@|hit
E,?}*i @?_ kL3U!c bbc i *?i@h UL4M?@|L?t U @hi ?Thi_U|@M*i | hitTiU| |L
T@t| ?uLh4@|L? @?_ UL44L? U)U*it
E
V@_ @?_ ,?}*i bb U @hi _i?i_ @t UL44L?
ui@|hit ? ht| _gihi?Uit uLh ThLUittit U @hi UL?|i}h@|i_ At U*@tt Lu UL?UiT|t
Thiti?|t tiih@* ThLM*i4t 6ht|c } UhLttULhhi*@|L? ?i|ih 4T*it ?Lh t 4T*i_ M)
UL?|i}h@|L?c UL44L? U)U*it Lh UL44L? ui@|hit
E
"@c bb @?_ 6Lh? @?_ +iU*?c
bbb 5iUL?_c |iti 4i@thit @hi M?@h) 6Lh i @4T*ic |L ThLUittit @hi i|ih UL?|i}h@|i_
Lh ?L|c M| i U@?<| it|@M*t _gihi?| _i}hiit Lu @ttLU@|L? 6?@**)c ? Lh_ih |L |it| uLh
h@?! hi_U|L?c i ?ii_ |L it|4@|i |i T@h@4i|iht Lu @ V+c U 4@) Mi ThLM*i4@|U
4
Wklv uhvhdufk kdv ehhq vxssruwhg e| dq D1U1F1 frqwudfw ri wkh Frppxqdxwh iudqfdlvh gh Ehojltxh dqg
e| wkh Hxurshdq Frpplvvlrq xqghu wkh Wudlqlqj dqg Prelolw| ri Uhvhdufkhuv Surjudpph
+
Frqwudfw Qr
HUEIPU[FW<;03546
,

i? |i ?4Mih Lu |4i tihit t *@h}i 6Lh @** |iti hi@tL?tc *i |i ?L|L? Lu h@?!
hi_U|L? t Uih|@?*) ?|ihit|?} |L U@h@U|ih3i tL4i @tTiU|t Lu |i _)?@4U ThLTih|it Lu
4*|@h@|i |4i tihitc | t ?L| |i @TThLTh@|i L?i uLh |i t|_) Lu UL4Li4i?|t
| @| t @? @TThLTh@|i 4i@thi Lu UL4Li4i?|q W? |t T@Tih i tL |@| i t|
?} |i |MLL! ^@?||it *!i ULihi?Ui @?_ ULihi?U)c U @hi _i*) ti_ ? |4i tihit
*|ih@|hic @hi ?L| @TThLTh@|i @t UL4Li4i?| ?_i it `i ThLTLti @ hi*@|i_ M| _gihi?|
4i@thic _)?@4U ULhhi*@|L?c U @hti ^|i ?@|h@**) uhL4 M@tU uhi^i?U) _L4@? ?L
|L?t #)?@4U ULhhi*@|L? U@? Mi _iUL4TLti_ M) uhi^i?U) @?_ uhi^i?U) M@?_ @?_ U@?
|i? Mi ti_ |L t|_) Mt?itt U)U*i @t i** @t *L?}h? ^it|L?t #)?@4U ULhhi*@|L?
Mi|ii? |L ThLUittit Lih @ M@?_ |h?t L| |L Mi _i?|U@* |L t|@|U ULhhi*@|L? Lu |i t@4i
ThLUittitc @u|ih t|@M*i Thi*|ih?} LhiLihc *L?}h? _)?@4U ULhhi*@|L? t hi*@|i_ ? @
t4T*i @) |L t|LU@t|U UL?|i}h@|L?
`i ti Lh ?L|L? Lu _)?@4U ULhhi*@|L? |L UL?t|hU| @ 4*|@h@|i ?_i Lu UL4Li
4i?|c U i ?@4i ULitL? Ai *@||ih ThL_it @ t44@h) 4i@thi Lu |i _i}hii Lu
UL4Li4i?| |? @ }hLT Lu @h@M*it Lh Mi|ii? |L }hLTt Lu @h@M*it @?_ U@? Mi ti_c
uLh ?t|@?Uic @t @ 4i|hU |L UL?t|hU| _)?@4U U*t|iht
AL **t|h@|i Lh ThLTLti_ 4i@thi @?_ |L ThL_i uh|ih 4L|@|L?c i it|4@|i ULi
tL? Lu L|T| _@|@ ? N5 t|@|it @?_ ,hLTi@? ?@|L?t @?_ t|_) |i uL**L?} ^it|L?t
hi L|T| U|@|L?t |? ,hLTi 4Lhi ULhhi*@|i_ |@? L|T| U|@|L?t |? |i
N5 @?_ @hi hit*|t |i t@4i uLh Mt?itt U)U*i uhi^i?Uit @?_ |i *L?} h?q hi t|@|it Lh
UL?|hit U UL4Li 4Lhi t|hL?}*) U*Lti*) *LU@|i_ uhL4 @ }iL}h@TU@* TL?| Lu iq
#Lit MLh_ih 4@||iht uLh L|T| t)?UhL?3@|L? @?_ @| @| uhi^i?U) h@?}iq
2 #)?@4U ULhhi*@|L?
2 Ai _i?|L? @?_ |i M@tU 4L|@|L?
L?t_ih |L 3ihL4i@? hi@* t|LU@t|U ThLUittit % @?_ +wi|7
%
E
b@?_7
+
E
bc Z bZc
Mi |i tTiU|h@* _i?t|) u?U|L?t Lu % @?_ + @?_
%+
E
b Mi |i ULtTiU|h4 Ai 4i@thi
i ThLTLtic _)?@4U ULhhi*@|L?c t
4
%+
E
b'
%+
E
b
t
7
%
E
b7
+
E
b
c
E

2

AL 4L|@|i |t 4i@thi i ?|hL_Ui |i tTiU|h@* _iUL4TLt|L? Lu |i ThLUittit %
|
@?_
+
|
ci
%
|
'
]
Z
3
Z
e
b|
_~
%
Eb +
|
'
]
Z
3
Z
e
b|
_~
+
Ebc E2
ihi _~
%
Eb@?__~
+
Eb @hi EUL4T*i  Lh|L}L?@* ?Uhi4i?| ThLUittit Etii i} hLU!i**
@?_ #@tc @T e , ThittL? 2 t@)t |@| %
|
@?_ +
|
U@? Mi i Thitti_ @t ??|i t4t< Lu
@it Lu _gihi?| uhi^i?Uitc i@U @?} @ h@?_L4 @4T*|_i t t i** !?L?c |i tTiU
|h@* @?_ UhLtttTiU|h@* _i?t|) u?U|L?t Lu %
|
@?_ +
|
@hi hi*@|i_ |L |i @MLi hiThiti?|@|L?
? |i uL**L?} @)G
7
%
Eb'@hEe
b|
_~
%
Eb ' @hE_~
%
Eb
7
+
E
b'@h
E
_~
%
E
b
7
%+
E
b'UL
E
_~
%
E
bc_~
+
E
b
7
+%
E
b'UL
E
_~
+
E
bc_~
%
E
b
E

`*i |i @it @TTi@h?} ? hiThiti?|@|L?
E
2 @hi UL4T*i c | t i@t*) tii? |@|c u %
|
t hi@*c |i? _~
%
E
b'_~
%
E
bc tL |@|
e
b|
_~
%
E
bne
3
b|
_~
%
E
b'2ULt
E
b|_L
%
E
b 2t?
E
b|_T
%
E
bc
E
e
ihi _L
%
@?_ _T
%
_i?L|ic hitTiU|i*)c |i hi@* @?_ |i 4@}?@h) T@h| Lu _~
%
Oi?Uii
@i |i @*|ih?@|i hiThiti?|@|L?
%
|
'2
]
Z
f
ULtEb|_L
%
Eb 2
]
Z
f
t?Eb|_T
%
Ebc ED
ihi |i UL4TL?i?| @| uhi^i?U) b t ULt
E
b|_L
%
E
bt?
E
b|_T
%
E
bc U t hi@* 54*@h*)c
|i hi@* @i _iUL4TLt|L? Lu +
|
t
+
|
'2
]
Z
f
ULt
E
b|_L
+
E
b 2
]
Z
f
t?
E
b|_T
+
E
b
t t i@t*) LM|@?i_ uhL4
E
 @?_
E
ec Lh ThLTLti_ 4i@thic 4
%+
E
bc t ?L|?} i*ti |@?
|i ULhhi*@|L? ULiUi?| Mi|ii? |i hi@* @it Lu uhi^i?U) b @TTi@h?} ? |i @MLi
hiThiti?|@|L?c i ULt
E
b|_L
+
E
b t?
E
b|_T
+
E
b@?_ULt
E
b|_L
%
E
b t?
E
b|_T
%
E
b At
t |i hi@tL? ) |i 4i@thi t _i?i_ L?*) uLh ?L??i}@|i uhi^i?Uitc L? |i ?|ih@*
d
fcZ *i@h*)c _)?@4U ULhhi*@|L? U@? @h) Mi|ii? @?_ 

22 Ai hi*@|L? | RULihi?U) @?_ RULihi?Ui
#)?@4U ULhhi*@|L? t t|hU|*) hi*@|i_ |L ML| ULihi?U) @?_ ULihi?UiQ|L i** !?L?
?_iUit ? |4i tihit *|ih@|hi Lihi?U) t _i?i_ @t
F
%+
Eb'
7
%+
Eb
t
7
%
Eb7
+
Eb
'
%+
Ebn'
%+
Eb
t
7
%
Eb7
+
Eb
c
ihi '
%+
Eb |i ^@_h@|hi tTiU|h4 Oi?Ui ULihi?U) t UL4T*i ? }i?ih@* @?_ t ?L|
t)44i|hUc i F
%+
Eb@?_F
+%
Eb @hi ?L| i^@*c M| UL?}@|i #)?@4U ULhhi*@|L? 4
%+
Eb
t |i hi@* T@h| Lu ULihi?U) @?_ U@? @*tL Mi LM|@?i_ M) @ih@}?} ULihi?Uit @| uhi^i?U)
b @?_ bc U @*tL @hi UL?}@|iG
4
%+
E
b'
F
%+
E
bnF
%+
E
b
2
)t?}
E
 |i hi@_ih U@? i@t*) ihu) |@| F
%+
E
b t |i ULhhi*@|L? ULiUi?| Lu _~
%
E
b
@?_ _~
+
E
b Oi?Ui |i ?|ihThi|@|L? Lu ULihi?U) t ^|i t4*@h |L |@| Lu _)?@4U
ULhhi*@|L?c |i M@tU _gihi?Ui Mi?} |@| |i uLh4ih t hi*@|i_ |L |i UL4T*i hiThiti?|@|L?
E
2 h@|ih |@? |i hi@* @i _iUL4TLt|L?
E
D | @?L|ih @)c i t4T*) UL**iU| |L}i|ih
uhi^i?Uit b @?_ b tL |@| |i 4@}?@h) T@h|t U@?Ui* L| At t TihuiU|*) UL?tt|i?|
| Lh @4c t?Ui |i @it Lu uhi^i?Uit b @?_ b @i|it@4iTihL_U|)
+i}@h_?} ULihi?UiQLh t^@hi_ULihi?U)c @t t tL4i|4it U@**i_Q| t _i?i_ @t |i
t^@hi_ 4L_*t Lu ULihi?U)c |@| t
M
%+
E
b'
%+
E
b
2
n '
%+
E
b
2
7
%
Eb7
+
Eb
'
m 7
%+
E
b m
2
7
%
Eb7
+
Eb
AihiuLhi ULihi?Ui t hi@* @?_ t)44i|hU OLiihc | _Lit ?L| 4i@thi ULhhi*@|L? @|
_gihi?| uhi^i?Uitc MiU@ti | _thi}@h_t |i T@ti _gihi?Uit Mi|ii? @h@M*it At U@?
Mi i@t*) tii? M) LMtih?} |@| M
%+
E
b t ?@h@?| | hitTiU| |L tu|?} |i ThLUittit
Lih |4ic i |i ULihi?Ui Mi|ii? %
|
@?_ +
|
3
&
t|it@4i@t|@|Lu%
|
@?_ +
|
Atc
Mit_it Mi?} @? 44i_@|i UL?ti^i?Ui Lu |i _i?|L?c t UL?tt|i?| | |i i**!?L?
?|ihThi|@|L? Lu ULihi?Ui @t |i -
2
uhL4 |i hi}hittL? Lu +
|
L? |i T@t|c Thiti?| @?_ u|hi
Lu %
|
G U*i@h*)c ? |t hi}hittL?c i|ih |i UL?|i4TLh@?iLt hi}hittLh t %
|
Lh %
|
3
&
U@??L|
4@!i @?) _gihi?Ui
_gihi?| @) |L tii |i t@4i TL?| t ThL_i_ M) |i TL*@h hiThiti?|@|L? Lu |i
UhLtttTiU|h4G
7
%+
E
b'-
%+
E
be
w
E
b
e

Citations
More filters

Journal ArticleDOI
Abstract: This survey of business cycle synchronization in the European monetary union focuses on two issues: have business cycles become more similar, and which factors drive business cycle synchronization. We conclude that business cycles in the euro area have gone through periods of both convergence and divergence. Still, there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased. Higher trade intensity is found to lead to more synchronization, but the point estimates vary widely. The evidence for other factors affecting business cycle synchronization is very mixed.

328 citations


Cites background or methods from "A Measure of Comovement for Economi..."

  • ...Croux et al. (2001) suggest that for more than two series, one should look at the cohesion of these series, defined as the (weighted) average of the binary dynamic correlation coefficients....

    [...]

  • ...According to Artis and Zhang (1997), business cycles in Europe were more similar after the start of the ERM than before, which they interpret as evidence that monetary integration will enhance business cycle synchronization....

    [...]

  • ...They argue that this is inconsistent with Artis and Zhang’s (1999) view that increased monetary integration, specifically after the creation of the European ERM in 1979, and business cycle synchronization are positively related....

    [...]

  • ...The simplest solution is to compare correlations in two periods, for example, before and after the establishment of the Exchange Rate Mechanism (ERM) (Artis and Zhang, 1997, 1999), or for multiple periods as in Inklaar and De Haan (2001)....

    [...]

  • ...measures have been suggested in the literature as well, like the dynamic correlation measure of Croux et al. (2001), the phase-adjusted correlations of Koopman and Azevedo (2003) and the concordance index of Harding and Pagan (2002).13 The dynamic correlation measure of Croux et al. (2001) is…...

    [...]


Journal ArticleDOI
Abstract: We investigate a consumption-based present-value relation that is a function of future dividend growth and find that changing forecasts of dividend growth are an important feature of the post-war US stock market, despite the failure of the dividend–price ratio to uncover such variation In addition, dividend forecasts are found to covary with changing forecasts of excess stock returns over business cycle frequencies This covariation is important because positively correlated fluctuations in expected dividend growth and expected returns have offsetting effects on the log dividend–price ratio The market risk premium and expected dividend growth thus vary considerably more than is apparent using the log divided–price ratio alone as a predictive variable

307 citations


Posted Content
Abstract: We analyze the transmission of global financial crisis to business cycles in China and India. The pattern of business cycles in emerging Asian economies generally displays a low degree of synchronization with the OECD countries, which is consistent with the decoupling hypothesis. By contrast, however, the current financial crisis has had a significant effect on economic developments in emerging Asian economies. Applying dynamic correlations, we find wide differences for different frequencies of cyclical development. More specifically, at business cycle frequencies, dynamic correlations are typically low or negative, but they are also influenced most by the global financial crisis. Finally, we find a significant link between trade ties and dynamic correlations of GDP growth rates in emerging Asian countries and OECD countries.

220 citations


Cites background or methods from "A Measure of Comovement for Economi..."

  • ...An alternative measure of synchronization in the case of business cycles is dynamic correlation, as was proposed by Croux et al. (2001). Consider two stochastic process, x and y, with defined spectral density functions, Sx(λ) and Sy(λ), and a co-spectrum Cxy(λ), which are defined for all frequencies -π ≤ λ≤ π....

    [...]

  • ...An alternative measure of synchronization in the case of business cycles is dynamic correlation, as was proposed by Croux et al. (2001)....

    [...]

  • ...An alternative measure of synchronization in the case of business cycles is dynamic correlation, as was proposed by Croux et al. (2001). Consider two stochastic process, x and y, with defined spectral density functions, Sx(λ) and Sy(λ), and a co-spectrum Cxy(λ), which are defined for all frequencies -π ≤ λ≤ π. Then, the dynamic correlation according to Croux et al. (2001), ρ(λ), is defined as...

    [...]

  • ...Then, the dynamic correlation according to Croux et al. (2001), ρ(λ), is defined as ( ) ( ) ( ) ( )λλ λ λρ yx xy xy SS C = ....

    [...]

  • ...…business cycles in Asian emerging economies BOFIT- Institute for Economies in Transition BOFIT Discussion Papers 11/ 2009 Bank of Finland 17 In particular, the OECD countries usually show high dynamic correlations for business cy- cle frequencies and long-term co-movements (see Croux et al, 2001)....

    [...]


Posted Content
Abstract: This paper documents a new stylized fact of the greater macroeconomic stability of the U.S. economy over the last two decades. Using 131 monthly time series, three popular statistical methods and the forecasts of the Federal Reserve's Greenbook and the Survey of Professional Forecasters, we show that the ability to predict several measures of inflation and real activity declined remarkably, relative to naive forecasts, since the mid-1980s. This break down in forecast ability appears to be an inherent feature of the most recent period and thus represents a new challenge for competing explanations of the 'Great Moderation'.

199 citations


Journal ArticleDOI
Abstract: We propose a comprehensive methodology to characterize the business cycle comovements across European economies and some industrialized countries, without imposing any given model but trying to ’leave the data speak’. We develop a novel method to show that there is no evidence of a ’European economy’ that acts as an attractor to the other economies of the area. We show that the establishment of the Monetary Union has not significantly increased the level of comovements across Euro-area economies. Finally, we are able to explain an important proportion of the distances across their business cycles using macrovariables related to the structure of the economy, to the directions of trade, and to the size of the public sector.

190 citations


References
More filters

Journal ArticleDOI
Abstract: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples. If each element of a vector of time series x first achieves stationarity after differencing, but a linear combination a'x is already stationary, the time series x are said to be co-integrated with co-integrating vector a. There may be several such co-integrating vectors so that a becomes a matrix. Interpreting a'x,= 0 as a long run equilibrium, co-integration implies that deviations from equilibrium are stationary, with finite variance, even though the series themselves are nonstationary and have infinite variance. The paper presents a representation theorem based on Granger (1983), which connects the moving average, autoregressive, and error correction representations for co-integrated systems. A vector autoregression in differenced variables is incompatible with these representations. Estimation of these models is discussed and a simple but asymptotically efficient two-step estimator is proposed. Testing for co-integration combines the problems of unit root tests and tests with parameters unidentified under the null. Seven statistics are formulated and analyzed. The critical values of these statistics are calculated based on a Monte Carlo simulation. Using these critical values, the power properties of the tests are examined and one test procedure is recommended for application. In a series of examples it is found that consumption and income are co-integrated, wages and prices are not, short and long interest rates are, and nominal GNP is co-integrated with M2, but not M1, M3, or aggregate liquid assets.

25,329 citations


01 Jan 1987

3,958 citations


"A Measure of Comovement for Economi..." refers background in this paper

  • ...In this category belong the following three concepts: (i) the idea of co-integration (Engle & Granger, 1987): two processes are co-integrated if the spectral density at frequency zero has rank one; (ii) codependence (Gourieroux & Peaucelle, 1992), which refers to linear combinations of correlated…...

    [...]


Journal ArticleDOI
Abstract: A substantial fraction of cyclical unemployment is better characterized as fluctuations of the "frictional" or "natural" rate than as deviations from some relatively stable natural rate. Shifts of employment demand between sectors of the economy necessitate continuous labor reallocation. Since it takes time for workers to find new jobs, some unemployment is unavoidable. This paper presents evidence that most of the unemployment fluctuations of the seventies (unlike those in the sixties) were induced by unusual structural shifts within the U.S. economy. Simple time-series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market. These models are estimated and a derived natural rate series is constructed.

1,096 citations


ReportDOI
Abstract: This article introduces a class of statistical tests for the hypothesis that some feature that is present in each of several variables is common to them. Features are data properties such as serial correlation, trends, seasonality, heteroscedasticity, autoregressive conditional hetero-scedasticity, and excess kurtosis. A feature is detected by a hypothesis test taking no feature as the null, and a common feature is detected by a test that finds linear combinations of variables with no feature. Often, an exact asymptotic critical value can be obtained that is simply a test of overidentifying restrictions in an instrumental variable regression. This article tests for a common international business cycle.

544 citations


Posted Content
Abstract: The existence of a serial correlation common feature among the first differences of a set of I(1) variables implies the existence of a common cycle in the Beveridge-Nelson-Stock-Watson decomposition of those variables. A test for the existence of common cycles among cointegrated variables is developed. The test is used to examine the validity of the common trend-common cycle structure implied by Flavin's excess sensitivity hypothesis and Campbell and Mankiw's mixture of rational expectations and rule-of-thumb hypothesis for consumption and income. Linear independence between the cointegration and the cofeature vectors is exploited to decompose consumption and income into their trend and cycle components. Copyright 1993 by John Wiley & Sons, Ltd.

509 citations