INTERNATIONAL-BUSINESS CYCLES AND FINANCIAL INTEGRATION

Recently developed methods in the analysis and measurement of latent f actor models for time series are utilised to study international busin ess cycles and their relationship to international stockmarket price b ehaviour. An advantage of these methods is that the duality properties between time domain and frequency domain approaches for investigating the properties of time series can be exploited to identify and model business cycles. The empirical results show that the six countries stu died, which include the United States, Australia, Canada, United Kingd om, Germany and Japan, exhibit coherent national business cycles, alth ough these cycles are not all alike. It is also found that internation al coherence in economic activity has increased in the flexible exchan ge rate period, although it is not as strong as it is for the national business cycles. The coherence between stock-market prices and busine ss cycles is not strong, both nationally and internationally, but inte rnational stockmarkets appear to show greater mutual coherence than do the corresponding economies.