Group Of Seven (G-7) Definition
The group of seven, also known G-7, is a forum formed by the seven most economically-advanced nations of the world. The group was formed in 1975, comprising six countries namely Germany, France, United States, Italy, United Kingdom, and Japan. Canada was included in the group in 1976. The government leaders of each of these countries meet once a year or more frequently to discuss and coordinate the economic and monetary policies and other relevant issues.
A Little More on What is the G-7
The member countries of the G-7 represent 58% of the global net wealth and more than 46% of the global gross domestic product based on nominal values. The government leaders of these seven countries meet once a year (or more frequently) to discuss the issues related to the economic and monetary policies. The meeting is held in the member countries on a rotational basis. Each member country hosts the meeting in turns.
Before the oil crisis of 1973, an informal meeting was held by the high-profile financial officials from the economically most advanced nations that include the United States, West Germany, France, and the United Kingdom. In this meeting, the need for organizing such a group with most industrialized countries was discussed and agreed upon. Japan was included in the group during the mid-1973.
In 1975, a meeting was held in Chateau de Rambouillet, France to discuss the oil crisis and other economic issues. The meeting was attended by the representatives from six advanced countries namely France, Italy, West Germany, the United States, the United Kingdom, and Japan. The meeting of this group was held annually, and the G-6 was formed. Next year, Canada joined the group and made it G-7. The first meeting of the G-7 was hosted by the United States in 1975, in Puerto Rico.
The purpose of the G-7 is to propose economic and monetary policies and reforms for preventing a global recession. In the meeting of the G-7, the leaders of the most economically powerful countries discuss the major issues that impact the global economy.
After the end of the era of the Cold War, in 1997 Russia was invited by the United Kingdom and the United States to participate in the meeting of G-7 as an observer. Next year, Russia became a full-fledged member of the group and it became Group of 8 or simply G-8. In 2014, after the annexation of Crimea Russia was removed from the group.
In 1999, financial stability forum and G-20 were formed for managing the global monetary system. G-20 was formed with the members of G-7, European Union and 12 emerging economies including India, China, Brazil, Mexico, and South Africa. This group takes active roles in managing the global economic reforms.
References for the G-7
Academic Research on the G-7
- Monetary disturbances matter for business fluctuations in the G–7, Canova, F., & De Nicolo, G. (2002). Journal of Monetary Economics, 49(6), 1131-1159. The importance of monetary disturbance for cyclical fluctuations in real activity and inflation in investigated in this paper. A novel identification approach is employed in examining the significance. It concludes in the G-7 countries, monetary shocks significantly drive output and inflation cycles. In three of these countries they are the dominant source of fluctuations. The finding also suggests that they contain an important policy component and they have a time varying impact.
- Energy consumption and GDP: causality relationship in G–7 countries and emerging markets, Soytas, U., & Sari, R. (2003). Energy economics, 25(1), 33-37.The paper examines the time series properties of energy consumption and GDP. The data of top emerging economies and G-7 countries were used for examining the causality relationship between the GDP and energy economies. China was excluded from the study as data is not available. The study finds in Italy and Korea, causality runs from GDP to energy consumption and there is bi-directional causality in Argentina. In Turley, Germany, France, and Japan the causality runs from energy consumption to GDP. This it concludes, in the last four countries the energy conservation may hurt economic advancement.
- The monetary transmission mechanism: evidence from the G–7 countries, Gerlach, S., & Smets, F. (1995). This paper aims to identify the sources of income differences and economic growth for all the member states of EU27. It concludes, in the EU15 countries and the euro area, the low per capita GDP results from lower labor utilization and lower per hour productivity and in the new member state low productivity remain the main issue of concern.
- · Dynamic relationship between stock prices and exchange rates for G–7 countries, Nieh, C. C., & Lee, C. F. (2001). The Quarterly Review of Economics and Finance, 41(4), 477-490. The study asserts that in the G-7 countries the stock prices and exchange rates do not share a long-term significant relationship. It finds that in certain member countries of G-7, a short-term significant relationship between the two could have been observed only for one day.
- Liquidity and exchange rates: puzzling evidence from the G–7 countries, Grilli, V., & Roubini, N. (1995). (No. 95-17). This paper studies the impact of monetary policy shocks on exchange rates. Overshooting models with short-term price stickiness and flexible-price models with liquidity effects were used in the study. It considers VAR systems for the G-7 countries and concludes in the United States, positive innovations in the interest rates results in an impact appreciation of the U.S. dollar but in other G-7 countries, the result is the opposite. The paper attempts to explain this exchange rate puzzle with some empirical evidence.
- Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G–7 countries, Cologni, A., & Manera, M. (2008). Energy economics, 30(3), 856-888. The paper studies how the output and prices are affected directly by the price shocks in the G-7 countries. It further studies the reaction of the monetary variable to external shocks. A structural cointegrated VAR model is employed in the study.
- Energy consumption and income in G–7 countries, Soytas, U., & Sari, R. (2006). Journal of Policy Modeling, 28(7), 739-750. The study attempts to find out how the income gets affected due to the change in the energy consumption and vice versa in the member countries of G-7. The multivariate cointegration, error correction models and generalized variance decompositions are employed in this study. Uncover Granger causality relation between energy consumption and income is also used. The study finds that the direction causality differs from one country to another. Based on this observation the study concludes, even though all these countries have a similar level of economic development, they may have to employ different policy measures to comply with the Kyoto protocol.
- Trade elasticities for the G–7 countries, Hooper, P., Johnson, K., & Marquez, J. R. (2000). The stability of the conventional trade equations is tested by comparing the data of the real imports and exports of goods and services for the G-7 countries to their incomes and relative prices. The stability of the cointegration vectors and the error-correction formulations was tested by using the method of Chow and Kalman-Filter tests. The test concludes that in most of the cases, these equations are stable enough to be used for forecasting and policy simulations. The study makes some observation regarding the shift of income elasticity in the U.S trade. Furthermore, the finding of the test does not support the results of the earlier studies regarding income elasticity gap of Japan. It further observes, in the continental European countries the price channel is considerably weak.
- On the sources of business cycles in the G–7, Canova, F., & De Nicolò, G. (2003). Journal of international economics, 59(1), 77-100.
- On the sources of business cycles in the G–7, Canova, F., & De Nicolò, G. (2003). Journal of international economics, 59(1), 77-100. The paper attempts to investigate the sources of cyclical movements in output, inflation and term structure of interest rates against the data from the G-7 countries. The paper finds that in six of these nations, demand shocks are the dominant source output, inflation, and team structure fluctuations. It observes that the nominal shocks are dominant within the class of demand disturbances but after 1982 its important has decreased. The paper did not find any significant difference in the proportion of term structure variability.
- Does the stock market predict real activity? Time series evidence from the G–7 countries, Choi, J. J., Hauser, S., & Kopecky, K. J. (1999). Journal of Banking & Finance, 23(12), 1771-1792. The relationship between the industrial production growth rates and lagged real stock returns for the G-7 countries are analyzed by using the in-sample cointegration and error-correction models. The out-of-sample forecast-evaluation procedure is also implemented in this paper. A long-term equilibrium relationship between the log levels of industrial production and real stock prices was observed in the cointegration tests. The error-correction models show, a correlation exists between the industrial production growth and lagged real stock returns in the G-7 countries except for Italy. The implementation of the out-of-sample forecast evaluation procedure concludes the forecast of the industrial growth is enhanced by the stock market in the United States, United Kingdom, Japan, and Canada in several sub-periods.