Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105579
Authors: 
Karadimitropoulou, Aikaterini
León-Ledesma, Miguel
Year of Publication: 
2013
Series/Report no.: 
School of Economics Discussion Papers 1307
Abstract: 
Do sector-specific factors common to all countries play an important role in explaining business cycle co-movement? We address this question by analyzing international co-movements of value added (VA) growth in a multi-sector dynamic factor model. The model contains a world factor, country-specific factors, sector-specific factors, and idiosyncratic components. We estimate the model using Bayesian methods for 30 disaggregated sectors in the G7 economies for the 1974-2004 period. Our findings show that, although there is a substantial role for sector-specific factors, fluctuations are dominated by country-factors. The world factor appears to play a minimal role because, when using aggregate data, the world factor captures both the factor common to all countries and industries and the factor common to the same industry across countries. We then examine how these factors evolved as globalization deepened over the past two decades. Our results suggest that business cycles at a disaggregate level have not become more synchronized internationally. This is mainly driven by a substantial fall in the volatility of world shocks during the globalization period, rather than a lower sensitivity of sectoral growth to world factors. Our results also reveal that world factors appear to be more important for industries with a higher level of international vertical integration.
Subjects: 
dynamic factors
disaggregated business cycles
international co-movement
JEL: 
E32
F44
Document Type: 
Working Paper

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