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Regional growth cycle synchronisation with the Euro Area

Author

Listed:
  • Gabriele Tondl

    () (Europainstitute University of Economics and Business Administration Vienna)

  • Iulia Traistaru-Siedschlag

    (Economic and Social Research Institute (ESRI))

Abstract

This paper investigates the patterns and determinants of the co-movement of economic activity between regions in the European Union and the Euro Area. Using a panel data of 208 EU-15 regions over the period 1989-2002 we estimate a system of four simultaneous equations to analyse the impact of regional trade integration, specialisation and exchange rate volatility on correlations of regional growth cycles with the Euro area. We find that deeper trade integration with the Euro area had a strong direct positive effect on the synchronisation of regional growth cycles with the Euro area. Industrial specialisation and exchange rate volatility were sources of cyclical divergence. Industrial specialisation had however an indirect positive effect on growth cycles synchronisation via its positive effect on trade integration, while exchange rate volatility had an indirect additional negative effect on growth cycle correlations by reducing trade integration. Industrial specialisation had an indirect negative effect on growth cycle correlations by increasing the exchange rate volatility. The direct impact of trade integration on growth cycle correlations was stronger in the pre-EMU sub-period, while in the EMU sub-period, the negative direct effects of industrial specialisation and exchange rate volatility were stronger than in the pre-EMU sub-period. A distinct result is the positive and significant relationship between exchange rate volatility and growth cycle correlations in the pre-EMU sub-period, suggesting that over this period, country-specific exchange rate fluctuations acted as shock absorbers. Our analysis is relevant in the context of the discussion about the macroeconomic adjustment to region-specific shocks in the European Monetary Union.

Suggested Citation

  • Gabriele Tondl & Iulia Traistaru-Siedschlag, 2006. "Regional growth cycle synchronisation with the Euro Area," Papers WP173, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp173
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    File URL: http://www.esri.ie/pubs/WP173.pdf
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    References listed on IDEAS

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    Cited by:

    1. Michael J. Artis & Jarko Fidrmuc & Johann Scharler, 2008. "The transmission of business cycles," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(3), pages 559-582, July.
    2. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2011. "What Drives Regional Business Cycles? The Role Of Common And Spatial Components," Manchester School, University of Manchester, vol. 79(5), pages 1035-1044, September.
    3. Ageliki Anagnostou & Ioannis Panteladis & Maria Tsiapa, 2015. "Disentangling different patterns of business cycle synchronicity in the EU regions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 615-641, August.
    4. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2009. "Common and spatial drivers in regional business cycles," Centre for Growth and Business Cycle Research Discussion Paper Series 118, Economics, The Univeristy of Manchester.
    5. Barrett, Alan & Bergin, Adele & FitzGerald, John & Traistaru-Siedschlag, Iulia, 2006. "Economic Assessment of the Euro Area: Forecasts and Policy Analysis, Autumn Report 2006," Research Series, Economic and Social Research Institute (ESRI), number sustat22.

    More about this item

    Keywords

    European Monetary Union; business cycles; regional growth;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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