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Unity and Plurality of the European Cycle

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Abstract

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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  • Guilhem Bentoglio & Jacky Fayolle & Matthieu Lemoine, 2002. "Unity and Plurality of the European Cycle," Documents de Travail de l'OFCE 2002-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:0203
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    References listed on IDEAS

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    1. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 797-814.
    2. 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.
    3. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, vol. 45(1), pages 109-134, January.
    4. 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 231-247, July-Sept.
    5. Francis X. Diebold & Glenn D. Rudebusch, 1999. "Business Cycles: Durations, Dynamics, and Forecasting," Economics Books, Princeton University Press, edition 1, number 6636, June.
    6. Jukka Nyblom & Andrew Harvey, 2001. "Testing against smooth stochastic trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 415-429.
    7. Jacky Fayolle & Alexandre Mathis, 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.
    8. 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.
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    Cited by:

    1. Jerome Creel & Jacques Le Cacheux, 2003. "Inflation divergence and public deficits in a monetary union," Documents de Travail de l'OFCE 2003-05, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. Guenter Lang, 2005. "Werbemarkt Fernsehen: Zur Eignung der Spektralanalyse als Prognoseinstrument," Discussion Paper Series 274, Universitaet Augsburg, Institute for Economics.
    3. Guenter Lang, 2004. "Zykluskonforme Krise oder Strukturbruch? - Zeitreiheneigenschaften des deutschen Werbemarktes," Discussion Paper Series 258, Universitaet Augsburg, Institute for Economics.

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    Keywords

    (A)symmetrical shocks; Common factors; European integration; Growth cycles; Stochastic trends; Structural time series model.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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