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Interregional Trade, Specialization, and the Business Cycle: Policy Implications for the EMU

Author

Listed:
  • Carlo Gianelle

    (Directorate B - Growth and Innovation)

  • Letizia Montinari

    (Directorate B - Growth and Innovation)

  • Simone Salotti

    (Directorate B - Growth and Innovation)

Abstract

In this paper we analyse the effects of trade and specialisation on regional business cycle co-movement in the Economic and Monetary Union. Using a novel and unique bilateral regional trade dataset, we find that regions with stronger trade linkages and similar economic structures have more synchronized cycles. These results suggest that policies fostering regional specialization at the European level may reduce business cycle synchronization across regions and countries. This, in turn, might generate macroeconomic tensions in the common currency area. On the other hand, market integration policies can foster regional cycle synchronization and favour the functioning of the monetary union.

Suggested Citation

  • Carlo Gianelle & Letizia Montinari & Simone Salotti, 2017. "Interregional Trade, Specialization, and the Business Cycle: Policy Implications for the EMU," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(1), pages 1-27, May.
    • Handle: RePEc:spr:jbuscr:v:13:y:2017:i:1:d:10.1007_s41549-017-0012-y
    DOI: 10.1007/s41549-017-0012-y
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    More about this item

    Keywords

    European regions; Business cycle synchronization; Trade; Sectorial specialization; Economic and Monetary Union;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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