Business Cycle Synchronization in the European Union: The Effect of the Common Currency
AbstractIn this paper, I analyse the synchronization of business cycles within the E.U., as this is an important ingredient for the implementation of a successful monetary policy. The business cycles of twelve E.U. countries and two sub-groups of countries are extracted for the period 1989Q1-2010Q2. The cycle of G3, the group of the three largest European economies (Germany, France and Italy) is then used as a benchmark series for the comparisons. The sensitivity of the data to alternative cycle extraction methodologies is explored employing the Hodrick-Prescott and Baxter-King filters using alternative parameter specifications and leads/lags. The strength of cycle synchronization is measured using linear regressions, cross-correlation coefficients and the Cycle Synchronization Index (CSI). To assess whether synchronization is stronger after the introduction of the common currency, we also test two sub-samples pre- and post-EMU (1999Q1). The empirical results provide evidence that cycle synchronization within the Eurozone has become stronger in the common currency period.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 18_13.
Date of creation: Apr 2013
Date of revision:
Business Cycle; Synchronization; Eurozone;
Other versions of this item:
- Periklis Gogas, 2013. "Business cycle synchronisation in the European Union: The effect of the common currency," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2013(1), pages 1-14.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-22 (All new papers)
- NEP-EEC-2013-05-22 (European Economics)
- NEP-MAC-2013-05-22 (Macroeconomics)
- NEP-MON-2013-05-22 (Monetary Economics)
- NEP-OPM-2013-05-22 (Open Economy Macroeconomics)
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