Disaggregating the international business cycle

These papers report on research carried out by, or under the supervision of, the external members of the Monetary Policy Committee (MPC) and their economic staff.
Published on 17 August 2012

External MPC Unit Discussion Paper No. 37

Robert Gilhooly, Martin Weale and Tomasz Wieladek

This paper investigates the international business cycle with new sector level data on hours and output for Canada, Germany, France, Italy, the United Kingdom and the United States from 1992 Q1 to 2011 Q3. We estimate a Bayesian dynamic common factor model on this disaggregate data to decompose the quarterly growth rates of output, hours worked and labour productivity into contributions from global, country, sector and idiosyncratic factors. During the ‘Great Recession’ our results suggest that the global factor became the most important determinant of output, hours and labour productivity growth. Before the ‘Great Recession’, on the other hand, the global factor was not very important; country and idiosyncratic factors were the dominant influences on output, hours and productivity; sector factors never matter very much.

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