Application of factor models for the identification of countries sharing international reference-cycles

Using the methodology developed in Stock and Watson (2002a), this paper proposes to exploit the information that contains the factor loading to identify the countries sharing common factors. The proposal is illustrated by analyzing the relation with the international reference-cycle of a large sample of advanced countries from 1950 until 2006.

► Factor loading information is exploited to identify countries sharing common cycles. ► The framework permits to exclude countries which would introduce noise in the model. ► We offer evidence of an international business cycle of advanced countries.