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The U.K. Business Cycle, Monetary Policy, and EMU Entry

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  • Hossein Samiei
  • Zenon Kontolemis

Abstract

In the context of the U.K. government’s EMU entry condition of cyclical convergence, this paper (i) provides further evidence suggesting that historically the U.K.’s business cycle has been more volatile than, and relatively independent of, the cycles in the euro-area countries; and (ii) identifies, using a small VAR model, a relatively significant role for monetary policy in explaining these differences. A simulation exercise suggests that if the U.K. interest rates had been more closely aligned with those in the euro area in the 1990s (as they would be if the United Kingdom were to join EMU), output growth might have been less volatile and more correlated with that in the euro area, but inflationary pressures might have persisted.

Suggested Citation

  • Hossein Samiei & Zenon Kontolemis, 2000. "The U.K. Business Cycle, Monetary Policy, and EMU Entry," IMF Working Papers 00/210, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/210
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    Cited by:

    1. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2012. "Purchasing Power Parity between the UK and the Euro Area," Working papers 2012-46, University of Connecticut, Department of Economics.
    2. Salvador Barrios & Marius Br¸lhart & Robert J.R. Elliott & Marianne Sensier, 2003. "A Tale of Two Cycles: Co-Fluctuations Between UK Regions and the Euro Zone," Manchester School, University of Manchester, vol. 71(3), pages 265-292, June.
    3. Christian Richter & Andrew Hughes Hallett, 2005. "A Time-Frequency Analysis of the Coherences of the US Business," Computing in Economics and Finance 2005 45, Society for Computational Economics.
    4. M.J. Artis, 2003. "Reflections on the optimal currency area (OCA) criteria in the light of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 297-307.
    5. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo Group Munich.
    6. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2014. "Purchasing Power Parity Between the UK and Germany: The Euro Era," Open Economies Review, Springer, vol. 25(4), pages 677-699, September.
    7. Andrew Hallett & Christian Richter, 2006. "Measuring the Degree of Convergence among European Business Cycles," Computational Economics, Springer;Society for Computational Economics, vol. 27(2), pages 229-259, May.
    8. Bovi, M., 2005. "Economic Clubs and European Commitment. Evidence from the International Business Cycles," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(2), pages 101-122.

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