MEASURING WORLD BUSINESS CYCLES

Using Kalman filtering and dynamic factor analysis, we decompose aggre gate output, consumption, and investment for the G7 countries into fac tors that are (i) common across all countries and aggregates, (ii) com mon across aggregates within a country, and (iii) specific to each ind ividual aggregate. In quarterly data for the period 1970 through 1993, fluctuations in all aggregates contain world and country-specific com mon components that are both statistically significant and quantitativ ely important. We find that the world and country-specific common comp onents play different roles in different business cycle episodes for e ach of the seven countries, and that either may be dominant during a p articular episode.