What Are the Driving Forces of International Business Cycles?
Working Paper No. 08-W15
Mario J. Crucini, M. Ayhan Kose, and Christropher Otrok
ABSTRACT [article]
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 and Phrases: International business cycle, Bayesian factor model, productivity, monetary policy, fiscal policy
JEL Classification Numbers: E32, F00, F41