Briefly, we construct a measure of relative macroeconomic performance by first identifying the global business cycle using a simple factor model. We calculate seasonally adjusted quarter-over-quarter real GDP growth rates and extract the first principal component across the 46 economies in our sample. This single factor explains around 40 per cent of the variation in the average economy’s output, but with wide variation across economies. We then use the residuals from the principal component analysis as the measure of an economy’s idiosyncratic performance. For each economy, we sum these residuals from the first quarter of 2008 to the fourth quarter.
