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This paper develops a multi-level structural factor model to study international output co-movement and its underlying driving forces. The method combines a structural VAR with a multi-level factor model, which helps to understand the economic meaning of the estimated factors. Using quarterly data of real GDP growth covering nine emerging Asian economies and G-7 countries, the authors estimate a global supply factor, a global demand factor, and group supply and demand factors for each group of the economies. They find that, while the role of the global factors has intensified over the past fifteen years for most of the economies, output fluctuations in Asia have remained less synchronised with the global factor than those in the industrial countries.
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