Globalization, the Business Cycle, and Macroeconomic Monitoring

S. Boragan Aruoba, Francis X. Diebold, Ayhan Kose and Marco Terrones, NBER International Seminar on Macroeconomics, 245-286, September .


We propose and implement a framework for characterizing and monitoring the global business cycle. Our framework utilizes high-frequency data, allows us to account for a potentially large amount of missing observations, and is designed to facilitate the updating of global activity estimates as data are released and revisions become available. We apply the framework to the G-7 countries and study various aspects of national and global business cycles, obtaining three main results. First, our measure of the global business cycle — the G-7 real activity factor — captures a significant amount of common variation across countries and displays the major global cyclical events of the past forty years. Second, the G-7 and idiosyncratic country factors appear to play different roles at different times in shaping national economic activity. Finally, the degree of G-7 business cycle synchronization among country factors has changed over time.

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