The transmission mechanism of business cycles among Germany, Japan, the UK and the USA

The study analyses the interdependent relationships of business cycles among four major countries using LA-VAR methods. The results are compared with results obtained using a standard VAR model. For the total sample (1962–1995), it is found that the economies of individual countries move independently and that inter-dependence is weak. However, causality from the USA to Japan, and from Japan to Germany can be observed. It is also found that the ripple effect differs in the first (1962–1973) and second (1973–1995) sample periods. A change in the international ripple effect on the business cycle may have occurred at the time of the first oil crisis. These results are almost robust to the empirical techniques employed in the analysis.