Paper #459

Title:

On the sources of business cycles in the G-7

Authors:

Fabio Canova and Gianni de Nicoló

Date:

October 1999 (Revised: March 2000)

Abstract:

This paper examines sources of cyclical movements in output, inflation and the term structure of interest rates. It employs a novel identification approach which uses the sign of the cross correlation function in response to shocks to catalog orthogonal disturbances. We find that demand shocks are the dominant source output, inflation and term structure fluctuations in six of the G-7 countries. Within the class of demand disturbances, nominal shocks are dominant, but their importance declined after 1982. Furthermore, there are no significant differences in the proportion of term structure variability explained by different structural sources at different horizons.

Keywords:

Structural shocks, business cycles, demand disturbances, dynamic correlations, impulse responses

JEL codes:

C68, E32, F11

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of International Economics, 59(1), 2003, 77-100

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