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A New Approach to Analyzing Convergence and Synchronicity in Growth and Business Cycles: Cross Recurrence Plots and Quantification Analysis

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  • Crowley, Patrick
  • Aaron, Schultz

Abstract

Convergence and synchronisation of business and growth cycles are important issues in the efficient formulation of euro area economic policies, and in particular European Central Bank (ECB) monetary policy. Although several studies in the economics literature address the issue of synchronicity of growth within the euro area, this is the first study to address this issue using cross-recurrence analysis. The main findings are that member state growth rates had largely converged before the introduction of the euro, but there is a wide degree of different synchronisation behaviours which appear non-linear in nature. Many of the euro area member states display what is termed here as "intermittency" in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could cause problems in future implementation of euro area monetary policy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23728.

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Date of creation: Jul 2010
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Handle: RePEc:pra:mprapa:23728

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Keywords: Euro area; business cycles; growth cycles; recurrence plots; recurrence quantification analysis; non-stationarity; complex systems; surrogate analysis.;

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  1. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  2. David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report, Federal Reserve Bank of Minneapolis 145, Federal Reserve Bank of Minneapolis.
  3. Carlo Altavilla, 2004. "Do EMU Members Share the Same Business Cycle?," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(5), pages 869-896, December.
  4. Gallegati Marco & Gallegati Mauro, 2007. "Wavelet Variance Analysis of Output in G-7 Countries," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 11(3), pages 1-25, September.
  5. Jakob de Haan & Robert Inklaar & Olaf Sleijpen, 2002. "Have Business Cycles Become More Synchronized?," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 23-42, 03.
  6. Artis, Michael J & Zhang, Wenda, 1999. "Further Evidence on the International Business Cycle and the ERM: Is There a European Business Cycle?," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 120-32, January.
  7. Victor Zarnowitz & Ataman Ozyildirim, 2001. "Time Series Decomposition and Measurement of Business Cycles, Trends and Growth Cycles," Economics Program Working Papers, The Conference Board, Economics Program 01-03, The Conference Board, Economics Program.
  8. Crowley , Patrick & Lee , Jim, 2005. "Decomposing the co-movement of the business cycle: a time-frequency analysis of growth cycles in the euro area," Research Discussion Papers, Bank of Finland 12/2005, Bank of Finland.
  9. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
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  11. Kontolemis, Zenon G, 1997. "Does Growth Vary over the Business Cycle? Some Evidence from the G7 Countries," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 64(255), pages 441-60, August.
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