DP4652 The International Business Cycle in a Changing World: Volatility and the Propagation of Shocks in the G-7

Author(s):	Michael J Artis, Denise Osborn, Pedro Perez-Vazquez
Publication Date:	October 2004
Keyword(s):	european integration, international business cycles, time variation, volatility
JEL(s):	E32, F02, F43
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4652

This Paper examines the changing relationships between the G7 countries through VAR models for the quarterly growth rates, estimated both over sub-periods and using a rolling data window. Six trivariate models are estimated, all of which include the US and a European (E15) aggregate. In relative terms, the conditional volatility of E15 growth has declined more since 1980 than the well-documented decline for the US. The propagation of shocks has also changed, with the volatility and propagation effects separated by applying shocks of pre-1980 magnitude to VARs estimated over various periods. Rolling estimation reveals that E15 has a steadily increasing impact on the US economy over time, while the effects of the US on Europe have been largest during the 1970s and the late 1990s.