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A Measure of Comovement for Economic Variables: Theory and Empirics

TL;DR: In this article, a measure of dynamic comovement between (possibly many) time series and names it cohesion is defined in the frequency domain and is appropriate for processes that are costationary, possibly after suitable transformations.
Abstract: This 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.

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Citations
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Posted Content
TL;DR: In this article, an empirical investigation of the degree of business cycle synchronization between Romania and the euro area, based on macroeconomic series that capture the cyclical features of the two economies, is presented.
Abstract: In light of adopting the euro in the near future, it is important to asses to which extent the Romanian business cycle evolves in a similar fashion with that of the euro zone. The present study is an empirical investigation of the degree of business cycle synchronization between Romania and the euro area, based on macroeconomic series that capture the cyclical features of the two economies. The results indicate that the most recent period, characterized by major economic and financial turmoil, has lead to an increase of the degree of comovement between of the Romanian economy with that of the euro area.

2 citations

Journal ArticleDOI
TL;DR: In this article, a co-mouvement entre variables reelles and financieres is analyzed in the Eurozone, where the authors adopt three approches differentes: identification de points de retournement des series and evaluation d'un indice de concordance; decomposition and comparaison des differentes composantes cycliques des series; enfin, calcul des correlations dynamiques entre les variables.
Abstract: Cet article propose l’analyse de co-mouvements entre variables reelles et financieres dans trois nouveaux pays membres de l’Union europeenne (Hongrie, Pologne et Republique tcheque) ainsi que dans la zone euro. Il s’agit de l’examen du co-mouvement d’une part entre le credit aux entreprises et la production industrielle reels, d’autre part entre les variables precedentes et un indicateur de politique monetaire, le taux d’interet reel a 3 mois. Partant du principe qu’il n’existe pas de definition unique du cycle economique, nous adoptons trois approches differentes : identification de points de retournement des series et evaluation d’un indice de concordance ; decomposition et comparaison des differentes composantes cycliques des series ; enfin, calcul des correlations dynamiques entre les variables. Nous trouvons une meilleure convergence des cycles reels que des cycles financiers entre les nouveaux pays membres de l’ue et la zone euro. Il n’existe pas une forte dependance entre credits et la production industrielle dans tous les pays ; cependant, il apparait que la politique monetaire lisse la distribution du credit au cours des cycles.

2 citations

01 Jan 2009
TL;DR: In this article, the feasibility of monetary union in East Asia was studied and a new empirical methodology based on frequency domain was proposed to examine business cycle synchronization in the region, and the satisfaction degree of this criterion for the region was analyzed.
Abstract: This paper analyses the dynamic synchronization process in East Asia. Our main purpose is to study the feasibility of a monetary union in this group. To this end, we examine business cycle synchronization in the region. We propose a new empirical methodology based on frequency domain. Firstly, we apply a new measure of comovement allowing us to distinguish period of synchronization and de-synchronization and to determine the cycle properties of it. Second, we compare the satisfaction degree of this criterion for the region. Analysis the degree of cohesion in the region gives us some recommendations about monetary union option in East Asia region. We are interested whether if business cycle in Asia would become more similar over time and if their similarities allow them to

2 citations

Journal ArticleDOI
TL;DR: In this paper, the authors investigated whether output comovement patterns across countries differ at varying frequencies and examined how trade and financial integration affect synchronization at different frequencies, finding that bilateral trade intensity tends to be positively related, whereas bilateral portfolio holdings tend to be negatively related, to GDP synchronization.

2 citations

References
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Journal ArticleDOI
TL;DR: 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.
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.

27,170 citations

01 Jan 1987

3,983 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
TL;DR: In this article, the authors present 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.
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.

1,128 citations

ReportDOI
TL;DR: In this paper, the authors introduce a class of statistical tests for the hypothesis that some feature that is present in each of several variables is common to them, which are data properties such as serial correlation, trends, seasonality, heteroscedasticity, auto-regression, and excess kurtosis.
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.

550 citations

Posted Content
TL;DR: The existence of a serial correlation common feature among the first differences of a set of I(1) variables implies the existence of common cycle in the Beveridge-Nelson-Stock-Watson decomposition of those variables as mentioned in this paper.
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.

511 citations