Empirical essays on business cycles

Abstract

This dissertation consist of four empirical essays. In the first essay, I study the synchronization of the business cycles across European countries and several industrialized countries with the aim of estimating how costly the economic integration is. I provide a comprehensive methodology to characterize the comovements across the economies. And I find that the creation of the European Monetary Union (EMU) has not significantly increased the cyclical comovement and show evidence against the existence of one common European cycle. This result puts a question mark on those works that either implicitly or explicitly assume that it exists. In the second essay, I further investigate the existence of one common European cycle focusing on the characteristics of the business cycles: duration, amplitude and concavity or convexity of the recessions and the expansions. Moreover, I present a robust methodology based on stationary bootstrap for dating and characterizing the business cycles. I find that the characteristics are very different across countries, that these differences have not decreased over time, and I identify four groups of countries. In the third essay, I conduct an empirical study of the possible factors that explain the business cycles comovements across countries. The main finding is that trade is fundamental, in agreement with most of the literature. However, in contrast to other works in the literature, the structural differences in the productive specialization, the fiscal policy, the savings ratio or the labor productivity have a significant role in explaining the cyclical divergences. And finally, in the fourth essay I identify several stylized facts in relation to the correlations and variances of several macroeconomic variables. I show that they are time-varying and tend to be higher in recessions than in expansions. I propose a parsimonious extension of the standard Dynamic Factor Model to take these facts into account. In addition, my proposal improves the forecasting performance in the short-run, especially in moments of high uncertainty. Furthermore, it delivers an estimate of the common factor’s volatility that can be interpreted as a measure of broad macroeconomic risk.