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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

Author

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  • 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.)

Abstract

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

Suggested Citation

  • Jarko Fidrmuc & Iikka Korhonen, 2004. "The Euro goes East: Implications of the 2000–2002 Economic Slowdown for Synchronisation of Business Cycles between the Euro area and CEECs," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(1), pages 45-62, March.
    • Handle: RePEc:pal:compes:v:46:y:2004:i:1:p:45-62
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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