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One Money, Several Cycles? Evaluation of European business cycles using model-based cluster analysis

Optimal currency area theory suggests that business cycle co-movement is a sufficient condition for monetary union, particularly if there are low levels of labour mobility between potential members of the monetary union. Previous studies of co-movement of business cycle variables found that there was a core of member states in the EU that could be grouped together as having similar business cycle co-movements, but these studies have always used Germany as the country against which to compare. This study updates and extends corresponding previous analyses. More specifically, it correlates the countries against both German and euro area macroeconomic aggregates and uses more recent techniques in cluster analysis, namely model-based clustering.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 3/2008.

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Length: 47 pages
Date of creation: 27 Feb 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_003
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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