Common Cycles Across OECD Countries

The strong correlation between Australian and US output growth over the last two decades has been widely documented and analysed. What has always been difficult to understand is the source of this correlation, particularly since the extent of Australia’s integration with the US economy is no greater in many respects than with other countries. A recent research project within the Economic Research Department of the Bank takes a broader perspective on this issue and examines the correlation in economic activity across bilateral pairs of a large number of OECD economies. It looks, in particular, at whether Australia’s economy has moved more closely with other countries’ economies than is the norm, and examines a range of factors that could explain the common cycles that are observed. Both economic linkages, such as trade in goods and assets, and common structural features are examined as potential explanations for the observed relationships. The Stylised Facts