Changes in Economic and Financial Synchronisation A Global Factor Analysis

• Published in: OECD Economic Department Working Papers no. 1517; pp. 0_1 - 27
• Main Authors: Alessandro Maravalle, Łukasz Rawdanowicz
• Format: Paper
• Language: English
• Published: Paris OECD Publishing 28.11.2018; Organisation for Economic Cooperation and Development (OECD)
• Series: OECD Economics Department Working Papers
• Subjects: Banking industry; Business cycles; co-movement; dynamic factor models; Economic crisis; Economic models; Equity; Financial and trade integration; GDP; Global economy; Globalization; Gross Domestic Product; Inflation; International business; international business cycle; International finance; Investigations; Market economies; Monetary policy; Per capita; Prices; Regulation of financial institutions; Securities markets; Sovereign debt; Europe
• ISSN: 1815-1973
• DOI: 10.1787/ba7c5c04-en

We estimate dynamic factor models for two sub-samples between 1995 and 2017 for up to 42 advanced and emerging-market economies to investigate changes in the contribution of global and regional factors to fluctuations in real GDP per capita growth, inflation, 10-year government bond yields and equity prices. The combined average contribution of global and regional factors in explaining fluctuations of GDP growth and inflation increased between 1995-2006 and 2007-17. In contrast, for financial variables, the role of country-specific factors strengthened between these two periods. The general findings are robust to alternative specifications of the lag structure, data frequency and the country composition of the largest region. Country-specific factors explain a higher share of variation of financial variables in emerging-market economies compared with advanced economies. For all variables, there is large cross-country heterogeneity regarding the level of contributions of specific factors and their evolution over time.