What are the sources of macroeconomic comovement among G-7 countries? Two main candidate explanations may be singled out: common shocks and common transmission mechanisms. In the article it is shown that they are complementary, rather than alternative, explanations. By means of a large-scale Factor Vector Autoregressive (FVAR) model, allowing for full economic and statistical identification of all global and idiosyncratic shocks, it is found that both common disturbances and common transmission mechanisms of global and country-specific shocks account for business cycle comovement in the G-7 countries. Moreover, spillover effects of foreign idiosyncratic disturbances seem to be a less important factor than the common transmission of global or domestic shocks in the determination of international macro-economic comovements.
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Document Type: Research Article
Dipartimento di Scienze Economiche e Finanziarie G. Prato, 10100 Torino, Italy
Dipartimento di Scienze Economiche e Metodi Quantitativi, Universita del Piemonte Orientale 'Amedeo Avogadro', 28100 Novara, Italy
Publication date: 2010-07-01
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