North American Business Cycle : Myth or Reality

This paper investigates the business cycle linkages between Canada, Mexico, and the United States by examining the significant features of the three business cycles for the period 1963 to 2002. It analyzes the correlation between the cyclical fluctuations in these countries and answers this key question: Is there any commonality and symmetry between the individual cycles? Using Markov-switching regimes in a multivariate framework and data on industrial production index and real GDP, we discover some synchronization of the business cycles in North America. Also, Mexico and Canada individually share a common cycle with the U.S. but not with each other. Several other issues were investigated including the role of the common cycle in explaining each country's economic fluctuations and the responses of each country to a common shock