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The two-speed Europe in business cycle synchronization

Author

Listed:
  • Maximo Camacho

    (Universidad de Murcia)

  • Angela Caro

    (Universidad Carlos III de Madrid)

  • German Lopez-Buenache

    (Universidad Católica de Murcia)

Abstract

This paper evaluates the consequences of the financial and sovereign debt crises on the evolution of the business cycle synchronization across all the Euro Area members. We take advantage of the dimension reduction properties of dynamic factor models to summarize a large dataset of macroeconomic indicators for the Euro Area countries. Then, we estimate latent state variables based on Markov-switching methodologies to obtain a time-varying measure of business cycle synchronization. The combination of these two techniques allows us to describe the evolution in the degree of coincidence of the business cycle phases along time for this set of countries. Our results suggest that there was a general decline in the degree of business cycle synchronization across the Euro Area countries following the financial and the sovereign debt crises. Although they have recovered the levels of business cycle synchronization exhibited before these events, there are significant differences across countries in the required time to recover those levels.

Suggested Citation

  • Maximo Camacho & Angela Caro & German Lopez-Buenache, 2020. "The two-speed Europe in business cycle synchronization," Empirical Economics, Springer, vol. 59(3), pages 1069-1084, September.
    • Handle: RePEc:spr:empeco:v:59:y:2020:i:3:d:10.1007_s00181-019-01730-4
    DOI: 10.1007/s00181-019-01730-4
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    References listed on IDEAS

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    1. Camacho, Maximo & Perez-Quiros, Gabriel & Saiz, Lorena, 2006. "Are European business cycles close enough to be just one?," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1687-1706.
    2. Carlo Di Giorgio, 2016. "Business Cycle Synchronization of CEECs with the Euro Area: A Regime Switching Approach," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 284-300, March.
    3. Phillips, Kerk L., 1991. "A two-country model of stochastic output with changes in regime," Journal of International Economics, Elsevier, vol. 31(1-2), pages 121-142, August.
    4. Danilo Leiva-Leon, 2017. "Measuring Business Cycles Intra-Synchronization in US: A Regime-switching Interdependence Framework," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 513-545, August.
    5. Jörg Breitung & Sandra Eickmeier, 2006. "Dynamic Factor Models," Springer Books, in: Olaf Hübler & Jachim Frohn (ed.), Modern Econometric Analysis, chapter 3, pages 25-40, Springer.
    6. Filippo Ferroni & Benjamin Klaus, 2015. "Euro Area business cycles in turbulent times: convergence or decoupling?," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3791-3815, July.
    7. 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.
    8. Mario Crucini & Ayhan Kose & Christopher Otrok, 2011. "What are the driving forces of international business cycles?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 156-175, January.
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    11. Bengoechea, Pilar & Camacho, Maximo & Perez-Quiros, Gabriel, 2006. "A useful tool for forecasting the Euro-area business cycle phases," International Journal of Forecasting, Elsevier, vol. 22(4), pages 735-749.
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    Cited by:

    1. Jakub Borowski & Adam Czerniak & Beáta Farkas, 2023. "Diverse Models of Capitalism and Synchronization of Business Cycles," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(4), pages 681-712, December.
    2. Agnieszka Gehringer & Jörg König, 2021. "Recent Patterns of Economic Alignment in the European (Monetary) Union," JRFM, MDPI, vol. 14(8), pages 1-23, August.

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    More about this item

    Keywords

    Business cycle synchronization; Monetary union; Financial crisis; Sovereign debt crisis;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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