Business Cycles: Cyclical Comovement Within the European Union in the Period 1960-1999. A Frequency Domain Approach

This paper provides a descriptive analysis of the business cycles of the European Union countries and of the two main industrialised countries outside the Union, the United States and Japan. We use the spectral analysis to identify three main features of the business cycles: 1- The duration of the business cycle. 2- The degree of correlation, in the frequency domain, of the business cycles. 3- The identification of leading and lagging countries with respect to the business cycles of a reference series. We conclude that the United States, Italy and Greece have the shortest cycles, with an average duration around eight years. Japan, Spain and Austria have the longest cycles, lasting more than ten years. All the other countries lie in between with an average duration ranging from eight to nine years. By comparing the business cycles of the various countries with the Euro Area business cycle we conclude that Sweden, Finland, Great Britain and the United States lead the Euro Area by more than one year. The Netherlands, Italy, Japan and Spain are also leading countries but with a lead of no more than one year. There is evidence of counter-cyclical behaviour for Denmark in a sub-period of the sample and no reliable conclusions can be stated for Greece and Ireland. The remaining countries exhibit a high degree of correlation with the Euro Area business cycles and with a lag of no more than three-quarters, with the exception of Austria.