Identifying the Common Component in International Economic Fluctuations - A New Approach

The world economy has become more closely integrated in recent years due to increasing trade and financial flows across countries. This has spurred interest in the question of how the ongoing phenomenon of "globalization" has affected the transmission and propagation of business cycle fluctuations across national borders. An important question in this context is whether a substantial fraction of economic fluctuations are country-specific or if there exists a "world business cycle," which might be defined as fluctuations that are common for all countries. More generally, the comovement of macroeconomic aggregates across different countries has become a topic of increasing interest in both academic and policy circles.