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The Euro goes East: Implications of the 2000–2002 Economic Slowdown for Synchronisation of Business Cycles between the Euro area and CEECs

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  • Jarko Fidrmuc

    ()
    ([1] Oesterreichische Nationalbank, Foreign Research Division, PO Box 61, A-1011 Vienna, Austria, [2] Comenius University Bratislava, Department of Economic and Financial Models, Slovakia)

  • Iikka Korhonen

    ()
    (Institute for Economies in Transition, Bank of Finland, PO Box 160, 00101 Helsinki, Finland.)

Abstract

We assess the correlation of supply and demand shocks between current countries in the euro area and European Union (EU) accession candidates from 1993/1995 to 2002. Supply and demand shocks are recovered from estimated structural vector autoregressive models of output growth and inflation. Notably, the economic slowdown between 2000 and 2002 increased heterogeneity of business cycles between the euro area and acceding counties. We find that several acceding countries have a quite high correlation of underlying shocks with the euro area and conclude that continuing integration within the EU is likely to align the business cycles of these countries in a manner similar to the synchronisation of supply and demand shocks that we document for the EU in the 1990s. Comparative Economic Studies (2004) 46, 45–62. doi:10.1057/palgrave.ces.8100040

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 46 (2004)
Issue (Month): 1 (March)
Pages: 45-62

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Handle: RePEc:pal:compes:v:46:y:2004:i:1:p:45-62

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  1. Jan Babetski & Laurence Boone & Mathilde Maurel, 2003. "Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp206, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Frenkel, Michael & Nickel, Christiane & Schmidt, Günter, 1999. "Some shocking aspects of EMU enlargement," Research Notes, Deutsche Bank Research 99-4, Deutsche Bank Research.
  3. Iikka Korhonen, 2003. "Some empirical tests on the integration of economic activity between the euro area and the accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 11(1), pages 177-196, March.
  4. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers, University of California at Berkeley 92-187, University of California at Berkeley.
  5. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 655-73, September.
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  7. Campos, Nauro F & Coricelli, Fabrizio, 2002. "Growth in Transition: What we Know, What we Don't and What we Should," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3246, C.E.P.R. Discussion Papers.
  8. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2119, C.E.P.R. Discussion Papers.
  9. Fidrmuc, Jarko & Korhonen, Iikka, 2001. "Similarity of supply and demand shocks between the Euro area and the CEECs," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 14/2001, Bank of Finland, Institute for Economies in Transition.
  10. Maurel, Mathilde, 2002. "On the Way of EMU Enlargement towards CEECs: What is the Appropriate Exchange Rate Regime?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3409, C.E.P.R. Discussion Papers.
  11. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia," Transition Economics Series, Institute for Advanced Studies 10, Institute for Advanced Studies.
  12. Kutan, Ali M. & Yigit, Taner M., 2002. "Nominal and real stochastic convergence within transition economies and to the European Union: Evidence from panel data," ZEI Working Papers, ZEI - Center for European Integration Studies, University of Bonn B 21-2002, ZEI - Center for European Integration Studies, University of Bonn.
  13. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
  14. McKinnon, Ronald, 2000. "Mundell, the Euro, and the World Dollar Standard," Journal of Policy Modeling, Elsevier, Elsevier, vol. 22(3), pages 311-324, May.
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  16. Kutan, Ali M. & Yigit, Taner M., 2004. "Nominal and real stochastic convergence of transition economies," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 23-36, March.
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