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Has the Euro changed the Business Cycle?

  • Zeno Enders


  • Philip Jung


  • Gernot J. Müller


In this paper we analyze European business cycles before and under EMU. Across the two periods we ?nd 1) a signi?cant decline in real exchange rate volatility, 2) signi?cant changes in cross-country correlations, and 3) the volatility of macroeconomic fundamentals largely un- changed. We develop a two-country business cycle model and show that the calibrated model is able to replicate key features of the data prior to and under EMU.We ?nd that the euro has a strong bearing on the transmission mechanism as cross-country spillovers increase substantially under EMU. As a result, foreign shocks become more and domestic shocks less important in accounting for the (unchanged) volatility of macroeconomic fundamentals.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse6_2009.

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Length: 43
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:bon:bonedp:bgse6_2009
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