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The Euro goes East: Implications of the 2000–2002 Economic Slowdown for Synchronisation of Business Cycles between the Euro area and CEECs

  • Jarko Fidrmuc

    ()

    ([1] Oesterreichische Nationalbank, Foreign Research Division, PO Box 61, A-1011 Vienna, Austria, [2] Comenius University Bratislava, Department of Economic and Financial Models, Slovakia)

  • Iikka Korhonen

    ()

    (Institute for Economies in Transition, Bank of Finland, PO Box 160, 00101 Helsinki, Finland.)

We assess the correlation of supply and demand shocks between current countries in the euro area and European Union (EU) accession candidates from 1993/1995 to 2002. Supply and demand shocks are recovered from estimated structural vector autoregressive models of output growth and inflation. Notably, the economic slowdown between 2000 and 2002 increased heterogeneity of business cycles between the euro area and acceding counties. We find that several acceding countries have a quite high correlation of underlying shocks with the euro area and conclude that continuing integration within the EU is likely to align the business cycles of these countries in a manner similar to the synchronisation of supply and demand shocks that we document for the EU in the 1990s. Comparative Economic Studies (2004) 46, 45–62. doi:10.1057/palgrave.ces.8100040

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Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 46 (2004)
Issue (Month): 1 (March)
Pages: 45-62

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Handle: RePEc:pal:compes:v:46:y:2004:i:1:p:45-62
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  1. Fidrmuc, Jarko & Korhonen, Iikka, 2001. "Similarity of supply and demand shocks between the Euro area and the CEECs," BOFIT Discussion Papers 14/2001, Bank of Finland, Institute for Economies in Transition.
  2. Kutan, Ali M. & Yigit, Taner M., 2002. "Nominal and real stochastic convergence within transition economies and to the European Union: Evidence from panel data," ZEI Working Papers B 21-2002, ZEI - Center for European Integration Studies, University of Bonn.
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  10. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
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