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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

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  • Fidrmuc, Jarko
  • Korhonen, Iikka

Abstract

We assess the correlation of supply and demand shocks between current countries in the euro area and EU accession candidates from 1993/1995 to 2002.Supply and demand shocks are recovered from estimated structural VAR 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 we document for the EU in the 1990s.JEL numbers E32, F42.Keywords: Optimum currency area, EU enlargement, structural VAR.

Suggested Citation

  • Fidrmuc, Jarko & Korhonen, Iikka, 2003. "The euro goes East : Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEECs," BOFIT Discussion Papers 6/2003, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2003_006
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    More about this item

    Keywords

    optimum currency area; eu enlargement; structural var.;
    All these keywords.

    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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