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Business Cycle Synchronization of the Euro Area with the New and Negotiating Member Countries

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  • Christos S. Savva
  • Kyriakos C. Neanidis
  • Denise R. Osborn

Abstract

We examine business cycle synchronizations between the euro area and the recently acceded EU and currently negotiating countries. Strong evidence is uncovered of time-variation in the degree of comovement between the cyclical components of monthly industrial production indicators for each of these countries with a euro area aggregate, which is then modeled through a bivariate VAR-GARCH specification with a smoothly time-varying correlation that allows for structural change. Where required to account for the observed time-variation in correlations, a double smooth transition conditional correlation model is used to capture a second structural change event. After allowing for dynamics, we find that all new EU members and negotiating countries have at least doubled their business cycle synchronization with the euro area, or changed from negative to positive correlations, since the early 1990s. Furthermore, some have exhibited U-curved or hump-shaped business cycle correlation patterns. The results point to great variety in timing and speed of the correlation shifts across the country sample.

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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 91.

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Length: 30 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:man:cgbcrp:91

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Citations

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Cited by:
  1. Jason Jones & Nora Collins & Lauren Sribnick, 2012. "External Influences on Business Cycle Synchronization in the Euro Area," International Advances in Economic Research, Springer, vol. 18(1), pages 28-39, February.
  2. Fabrizio Carmignani, 2010. "Endogenous Optimal Currency Areas: the Case of the Central African Economic and Monetary Community," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(1), pages 25-51, January.
  3. Faruk Balli & Syed Abul Basher & Hatice Ozer Balli, 2013. "International Income Risk-Sharing and the Global Financial Crisis of 2008- 2009," CAMA Working Papers 2013-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Bojeşteanu, Elena & Manu, Ana Simona, 2011. "Analiza empirică a sincronizării ciclului de afaceri şi a similarităţii şocurilor între România şi zona euro
    [Empirical analysis of business cycle synchronization and shock similarity betw    ," MPRA Paper 31295, University Library of Munich, Germany.
  5. Christos Savva & Nektarios Aslanidis, 2010. "Stock market integration between new EU member states and the Euro-zone," Empirical Economics, Springer, vol. 39(2), pages 337-351, October.
  6. Narayan K. Kishor & Kyriakos C. Neanidis, 2012. "What is Driving Financial Dollarization in Transition Economies? A Dynamic Factor Analysis," Centre for Growth and Business Cycle Research Discussion Paper Series 171, Economics, The Univeristy of Manchester.
  7. Gächter, Martin & Riedl , Aleksandra & Ritzberger-Grünwald, Doris, 2013. "Business cycle convergence or decoupling? Economic adjustment in CESEE during the crisis," BOFIT Discussion Papers 3/2013, Bank of Finland, Institute for Economies in Transition.
  8. Joanna Bruzda, 2011. "Business cycle synchronization according to wavelets – the case of Poland and the euro zone member countries," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 42(3), pages 5-32.
  9. David Matesanz Gomez & Guillermo J Ortega & Benno Torgler, 2012. "Synchronization and Diversity in Business Cycles: A Network Approach Applied to the European Union," School of Economics and Finance Discussion Papers and Working Papers Series 277, School of Economics and Finance, Queensland University of Technology.

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