IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v40y2013i4p655-684.html
   My bibliography  Save this article

Has the Euro changed business cycle synchronization? Evidence from the core and the periphery

Author

Listed:
  • Sybille Lehwald

Abstract

Using a Bayesian dynamic factor model, I examine the comovement of output, investment and consumption growth among Euro area countries before and after the introduction of the Euro. For that purpose, I compare a pre-Euro period (1991–1998) to a Euro period (2000–2010) and identify a common Euro factor for each period separately. I find that the comovement of main macroeconomic variables and the common factor increases for core Eurozone countries from the first to the second period, while it decreases for most peripheral economies. This can be interpreted as a rise in business cycle synchronization for the core and a respective decline for the periphery. Different to the implications made by the endogeneity argument of currency areas (Frankel and Rose in Econ J 108(449):1009–1025, 1998 ), my evidence suggest that the introduction of the Euro has fostered imbalances between core and peripheral Eurozone countries. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Sybille Lehwald, 2013. "Has the Euro changed business cycle synchronization? Evidence from the core and the periphery," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(4), pages 655-684, November.
  • Handle: RePEc:kap:empiri:v:40:y:2013:i:4:p:655-684
    DOI: 10.1007/s10663-012-9205-8
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10663-012-9205-8
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s10663-012-9205-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Enders, Zeno & Jung, Philip & Müller, Gernot J., 2013. "Has the Euro changed the business cycle?," European Economic Review, Elsevier, vol. 59(C), pages 189-211.
    2. Fritz Breuss, 2011. "Downsizing the Eurozone into an OCA or Entry into a Fiscal Transfer Union," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(04), pages 05-12, December.
    3. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    4. Fritz Breuss, 2011. "EU-Wirtschaftsregierung: Eine notwendige aber nicht hinreichende Bedingung für das Überleben der Eurozone und des Euro," FIW Policy Brief series 012, FIW.
    5. Jesús Crespo-Cuaresma & Michael Pfaffermayr & Octavio Fernández Amador & Catherine Keppel, 2011. "Macroeconomic Aspects of European Integration: Fiscal Policy, Trade Integration and the European Business Cycle," FIW Research Reports series III-004, FIW.
    6. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    7. Hans-Werner Sinn & Teresa Buchen & Timo Wollmershäuser, 2011. "Trade Imbalances – Causes, Consequences and Policy Measures: Ifo’s Statement for the Camdessus Commission," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(01), pages 47-58, March.
    8. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-775, August.
    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., vol. 2(1), pages 1-16, January.
    10. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2012. "Do institutional changes affect business cycles? Evidence from Europe," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1520-1533.
    11. Demyanyk, Yuliya & Volosovych, Vadym, 2008. "Gains from financial integration in the European Union: Evidence for new and old members," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 277-294, March.
    12. Adrian Pagan & Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 151-159.
    13. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
    14. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
    15. Faruk Balli & Sebnem Kalemli‐Ozcan & Bent E. Sørensen, 2012. "Risk sharing through capital gains," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 472-492, May.
    16. Otrok, Christopher & Whiteman, Charles H, 1998. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 997-1014, November.
    17. Jean Imbs, 2004. "Trade, Finance, Specialization, and Synchronization," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 723-734, August.
    18. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010. "Business Cycles in the Euro Area," NBER Chapters, in: Europe and the Euro, pages 141-167, National Bureau of Economic Research, Inc.
    19. Hans-Wener Sinn & Teresa Buchen & Timo Wollmershauser, 2011. "Trade Imbalances: Causes, Consequences, and Policy Measures," Book Chapters, in: Jack T. Boorman & André Icard (ed.), Reform of the International Monetary System: The Palais Royal Initiative, edition 1, chapter 26, pages 321-342, Emerging Markets Forum.
    20. Iulia Siedschlag & Gabriele Tondl, 2011. "Regional output growth synchronisation with the Euro Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(2), pages 203-221, May.
    21. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, vol. 45(1), pages 109-134, January.
    22. Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 169-187, March.
    23. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    24. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, September.
    25. Victor Zarnowitz, 1992. "Business Cycles: Theory, History, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number zarn92-1, September.
    26. Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008. "Understanding the evolution of world business cycles," Journal of International Economics, Elsevier, vol. 75(1), pages 110-130, May.
    27. Marco Del Negro & Christopher Otrok, 2008. "Dynamic factor models with time-varying parameters: measuring changes in international business cycles," Staff Reports 326, Federal Reserve Bank of New York.
    28. Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers 4119, C.E.P.R. Discussion Papers.
    29. Marc Piopiunik & Martin Schlotter, 2012. "Identifying the Incidence of "Grading on a Curve": A Within-Student Across-Subject Approach," ifo Working Paper Series 121, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    30. Joffrey Malek Mansour, 2003. "Do national business cycles have an international origin?," Empirical Economics, Springer, vol. 28(2), pages 223-247, April.
    31. Massmann, Michael & Mitchell, James, 2003. "Reconsidering the evidence: Are Eurozone business cycles converging," ZEI Working Papers B 05-2003, University of Bonn, ZEI - Center for European Integration Studies.
    32. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    2. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010. "Business Cycles in the Euro Area," NBER Chapters, in: Europe and the Euro, pages 141-167, National Bureau of Economic Research, Inc.
    3. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    4. Petr Rozmahel & Ladislava Issever Grochová & Marek Litzman, 2014. "The Effect of Asymmetries in Fiscal Policy Conducts on Business Cycle Correlation in the EU. WWWforEurope Working Paper No. 62," WIFO Studies, WIFO, number 47249.
    5. Ansgar Belke & Clemens Domnick & Daniel Gros, 2017. "Business Cycle Synchronization in the EMU: Core vs. Periphery," Open Economies Review, Springer, vol. 28(5), pages 863-892, November.
    6. Zouri, Stéphane, 2020. "Business cycles, bilateral trade and financial integration: Evidence from Economic Community of West African States (ECOWAS)," International Economics, Elsevier, vol. 163(C), pages 25-43.
    7. Michaelides, Panayotis G. & Papageorgiou, Theofanis, 2012. "On the transmission of economic fluctuations from the USA to EU-15 (1960–2011)," Journal of Economics and Business, Elsevier, vol. 64(6), pages 427-438.
    8. N. Antonakakis & G. Tondl, 2014. "Does integration and economic policy coordination promote business cycle synchronization in the EU?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(3), pages 541-575, August.
    9. Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008. "Understanding the evolution of world business cycles," Journal of International Economics, Elsevier, vol. 75(1), pages 110-130, May.
    10. Degiannakis, Stavros & Duffy, David & Filis, George & Livada, Alexandra, 2016. "Business cycle synchronisation in EMU: Can fiscal policy bring member-countries closer?," Economic Modelling, Elsevier, vol. 52(PB), pages 551-563.
    11. Konstantakopoulou, Ioanna & Tsionas, Efthymios G., 2014. "Half a century of empirical evidence of business cycles in OECD countries," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 389-409.
    12. Giannone, Domenico & Reichlin, Lucrezia & Lenza, Michele, 2009. "Business cycles in the euro area," Working Paper Series 1010, European Central Bank.
    13. Gächter, Martin & Riedl, Aleksandra, 2014. "One money, one cycle? The EMU experience," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 141-155.
    14. Ageliki Anagnostou & Ioannis Panteladis & Maria Tsiapa, 2015. "Disentangling different patterns of business cycle synchronicity in the EU regions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 615-641, August.
    15. Caporale, Guglielmo Maria & De Santis, Roberta & Girardi, Alessandro, 2015. "Trade intensity and output synchronisation: On the endogeneity properties of EMU," Journal of Financial Stability, Elsevier, vol. 16(C), pages 154-163.
    16. Calcagnini, Giorgio & Travaglini, Giuseppe, 2014. "A time series analysis of labor productivity. Italy versus the European countries and the U.S," Economic Modelling, Elsevier, vol. 36(C), pages 622-628.
    17. Sumru Altug & Bilin Neyapti & Mustafa Emin, 2012. "Institutions and Business Cycles," International Finance, Wiley Blackwell, vol. 15(3), pages 347-366, December.
    18. Cesa-Bianchi, Ambrogio & Imbs, Jean & Saleheen, Jumana, 2019. "Finance and synchronization," Journal of International Economics, Elsevier, vol. 116(C), pages 74-87.
    19. Daragh Clancy & Lorenzo Ricci, 2019. "Loss aversion, economic sentiments and international consumption smoothing," Working Papers 35, European Stability Mechanism.
    20. Crespo-Cuaresma, Jesús & Fernández-Amador, Octavio, 2013. "Business cycle convergence in EMU: A first look at the second moment," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 265-284.

    More about this item

    Keywords

    European business cycles; Euro; Optimum currency area; Core and periphery; Dynamic factor analysis; C11; C32; E32; F41; F42;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:40:y:2013:i:4:p:655-684. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.