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The European Business Cycle

This paper deals with the existence and identification of a common European growth cycle. Univariate Markov switching autoregressions (MS-AR) are used for individual countries in order to detect changes in the mean growth rate of industrial production. A Markov switching vector autoregression model (MS-VAR) is then used to identify a common cycle in Europe. Three important results are obtained. First, we find a common unobserved component governing the business cycle dynamics in Europe, suggesting the existence of a common business cycle. Second, we propose a dating of the business cycle in Europe, both for an index of industrial production (IIP) and gross domestic product (GDP); both chronologies appear to be consistent. Third, we retrieve an important set of stylized facts and relate these with those reported for the US economy (see, among others, French (1993), Warnock y Warnock (2000) and Sichel (1994)).

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2002/19.

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Length: 50 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:cea:doctra:e2002_19
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  17. Alan C. Stockman, 1987. "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," NBER Working Papers 2313, National Bureau of Economic Research, Inc.
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  38. Inklaar, Robert & de Haan, Jakob, 2001. "Is There Really a European Business Cycle? A Comment," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 215-20, April.
  39. H. Krolzig, 1996. "Statistical Analysis of Cointegrated VAR Processes with Markovian Regime Shifts," SFB 373 Discussion Papers 1996,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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