Essays on the Business Cycle
In this dissertation, I contribute to understanding business cycle fluctuations in the advanced economies in Europe and North America. I focus on the influence of the newly industrialized economies, most notably China, and the impact of sudden increases in economic uncertainty. Moreover, I provide new evidence on two significant events of the last two decades: the Great Recession and the subsequent downturn in inflation rates. My results show that the emerging economies play a non-negligible role in the international business cycle transmission. Idiosyncratic shocks from large countries like China have a significant macroeconomic impact in the G7, pertaining mostly to financial and price indicators. Furthermore, I show that shocks to uncertainty have a potentially small macroeconomic effect once they are modeled jointly with financial shocks. Financial shocks themselves, however, are confirmed as important driving forces of the business cycle, particularly in recessions. The empirical methods I use rest upon medium- to large-dimensional multivariate time series analysis and factor analysis. I partially allow for nonlinearity by distinguishing between recessions and booms.