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Unity and Plurality of the European Cycle

We apply uni- and multivariate unobserved components models to the study of European growth cycles. The multivariate dimension enables to search similar or, more strongly, common components among national GDP series (quarterly data from 1960 to 1999). Three successive ways to exhibit the European cycle satisfactorily converge: the direct decomposition of the aggregate European GDP; the aggregation of the member countries' national cycles; the search for common components between these national cycles. The European aggregate fluctuations reveal two distinct cyclical components, assimilated to the classical Juglar (decennial, related to investment) and Kitchin (triennial, related to inventories) cycles. The European Juglar cycle cannot be reduced to a single common component of the national cycles. It has at least a dimension of "three": it can be understood as the interference of three elementary and independent sequences of stochastic shocks, that correspond to the European geographical division. The euro-zone is not yet an optimal currency area, as the shocks generating the European cycles are not completely symmetrical. Studying the sequences of innovations extracted from the models shows that euro-zone vulnerability to strong shocks and asymmetry of these shocks tend to decrease during the last decades, but this trend is neither regular, nor irreversible.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2002-03.

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Date of creation: 2002
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Publication status: published in Revue de l'OFCE, n° 79 - juillet 2001.
Handle: RePEc:fce:doctra:0203
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  1. Mario Forni & Lucrezia Reichlin, 2001. "Federal policies and local economies: Europe and the U.S," ULB Institutional Repository 2013/10141, ULB -- Universite Libre de Bruxelles.
  2. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  3. Clark, Peter K, 1987. "The Cyclical Component of U.S. Economic Activity," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 797-814, November.
  4. Jukka Nyblom & Andrew Harvey, 2001. "Testing against smooth stochastic trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 415-429.
  5. Alexandre Mathis & Jacky Fayolle, 1993. "Tendances et cycles stylisés dans les pays du G7 - Une approche stochastique," Revue de l'OFCE, Programme National Persée, vol. 47(1), pages 201-233.
  6. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  7. Blackburn, Keith & Ravn, Morten O, 1992. "Business Cycles in the United Kingdom: Facts and Fictions," Economica, London School of Economics and Political Science, vol. 59(236), pages 383-401, November.
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