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Business Cycle Synchronization in the Euro Area and the Impact of the Financial Crisis

Author

Listed:
  • Martin Gächter

    () (Oesterreichische Nationalbank, Foreign Research Division)

  • Aleksandra Riedl

    () (Oesterreichische Nationalbank, Foreign Research Division)

  • Doris Ritzberger-Grünwald

    () (Oesterreichische Nationalbank)

Abstract

The extent of synchronization of national business cycles is a widespread indicator for gauging whether individual countries are indeed ready to adopt a common currency. The occurrence of asymmetric shocks and their consequences in Economic and Monetary Union (EMU) may hamper implementation of monetary policy, as such shocks may significantly raise the cost of the single monetary policy for individual countries. This study analyzes whether the synchronization pattern of business cycles in the euro area has systematically changed since the outbreak of the global financial crisis in 2008. Country-specific differences in the terms of trade and fiscal imbalances may have caused the global shock to affect euro area countries asymmetrically. Conversely, the business cycles of individual countries may have become more closely synchronized, as all countries slipped into recession at the same time. For the purpose of this study we use empirical data to establish which of the two effects dominates. The results of the analysis show a pronounced desynchronization of business cycles during the crisis period, both with respect to dispersion and to the correlation of business cycles. Moreover, interesting differences and parallels may be observed between the developments since the beginning of the most recent financial crisis and an earlier period, around 2004, when the output gap in the euro area was negative as well.

Suggested Citation

  • Martin Gächter & Aleksandra Riedl & Doris Ritzberger-Grünwald, 2012. "Business Cycle Synchronization in the Euro Area and the Impact of the Financial Crisis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 33-60.
  • Handle: RePEc:onb:oenbmp:y:2012:i:2:b:2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mariarosaria Comunale, 2017. "Synchronicity of real and financial cycles and structural characteristics in EU countries," CEIS Research Paper 414, Tor Vergata University, CEIS, revised 25 Sep 2017.
    2. Agnieszka Domańska & Dobrmił Serwa, 2014. "Synchronizacja cykli koniunkturalnych a podatność gospodarek krajów Europy na skutki kryzysu gospodarczego 2008-2009," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 37.
    3. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2016. "Business Cycle Spillovers in the European Union: What is the Message Transmitted to the Core?," Manchester School, University of Manchester, vol. 84(4), pages 437-481, July.
    4. Stavros Degiannakis & David Duffy & George Filis, 2014. "Business Cycle Synchronization in EU: A Time-Varying Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(4), pages 348-370, September.
    5. Svatopluk Kapounek & Jitka Pomenkova, 2012. "The Endogeneity of Optimum Currency Areas Criteria in the Context of Financial Crisis: Evidence from Time-Frequency Domain Analysis," MENDELU Working Papers in Business and Economics 2012-31, Mendel University in Brno, Faculty of Business and Economics.
    6. 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.
    7. Osińska, Magdalena & Kufel, Tadeusz & Błażejowski, Marcin & Kufel, Paweł, 2015. "Business Cycle Synchronization in EU Economies after the Recession of the Years 2007-2009," MPRA Paper 72888, University Library of Munich, Germany, revised 2015.
    8. Petr Rozmahel & Ludek Kouba & Ladislava Grochová & Nikola Najman, 2013. "Integration of Central and Eastern European Countries: Increasing EU Heterogeneity?," WWWforEurope Working Papers series 9, WWWforEurope.
    9. Quint, Dominic, 2014. "How Large Is the Stress from the Common Monetary Policy in the Euro Area?," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100341, Verein für Socialpolitik / German Economic Association.
    10. Escañuela Romana, Ignacio, 2013. "¿Convergen los ciclos económicos de los estados de la zona euro?: evidencia empírica
      [Do Economic Cycles Converge In The Euro Zone?: Empirical Evidence]
      ," MPRA Paper 48145, University Library of Munich, Germany.
    11. Quint, Dominic, 2014. "Is it really more dispersed? Measuring and comparing the stress from the common monetary policy in the euro area," Discussion Papers 2014/13, Free University Berlin, School of Business & Economics.
    12. Dominic Quint, 2016. "Is it really more dispersed?," International Economics and Economic Policy, Springer, vol. 13(4), pages 593-621, October.
    13. Martin Gächter & Aleksandra Riedl & Doris Ritzberger-Grünwald, 2013. "Business cycle convergence or decoupling? Economic adjustment of CESEE countries during the crisis," Chapters,in: A New Model for Balanced Growth and Convergence, chapter 10, pages 147-169 Edward Elgar Publishing.
    14. Gächter, Simon & Riedl, Alesandra & Ritzberger-Grünwald, Doris, 2013. "Business cycle convergence or decoupling? : Economic adjustment in CESEE during the crisis," BOFIT Discussion Papers 3/2013, Bank of Finland, Institute for Economies in Transition.
    15. Matesanz, David & Ortega, Guillermo J., 2016. "On business cycles synchronization in Europe: A note on network analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 287-296.

    More about this item

    Keywords

    Keywords: business cycles; European Monetary Union; convergence; financial crisis;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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