Business cycle regimes in a group of South East European Economies. Evidence from a threshold SUR approach

This study investigates the degree of economic integration that the group of selected South East European countries have achieved with the euro area. The evidence of this study suggests that all four selected South East European economies are in sync with the euro area cycle, and respectively form a homogenous group of countries. Still, as it was expected, higher implied growth rates are found in countries where greater internationalisation of enterprises and greater product and financial sector linkages to European Union (EU) markets are present. In addition, the overall findings of these countries' business cycle synchronisation with the euro area say nothing about the desirability of these countries adopting an early peg against the Euro and joining the Eurozone, but they do raise questions of the feasibility of doing so. With respect to the patterns in business cycle co-movement before and after the beginning of the global financial crisis this study clearly shows that synchronisation of business cycles is particularly strong during the downturn, i.e., up to mid-2009. Conversely, a decline in the synchronisation is observed in the early recovery phase after a recession.