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This paper aims to identify the stable long-run relationships as well as unstable driving forces of the world economy using a small aggregated cointegrated VAR model encompassing quarterly US, UK, Japanese and Euro Area data for the post-Bretton-Woods era. Three stable long-run relationships are found: output growth, the term spread and the inflation climate. The common stochastic trend of the global macro economy is dominated by the cumulated real short-term interest rate shocks, reflecting the strong increase of global real rates during the Volcker disinflation period, one of the dominating events of the last 40 years of macro history.
| Acceptance Date | Sep 7, 2016 |
|---|---|
| Publication Date | Mar 1, 2018 |
| Journal | The Manchester School |
| Print ISSN | 1467-9957 |
| Pages | 178-194 |
| DOI | https://doi.org/10.1111/manc.12175 |
| Keywords | Cointegration; Real interest rates; Volcker disinflation; Multi-country model; Divisia index |
| Publisher URL | http://dx.doi.org/10.1111/manc.12175 |
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