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Determinants of Co-movement and of Lead and Lag Behavior of Business Cycles in the Eurozone

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  • Hasan Engin Duran
  • Alexandra Ferreira-Lopes

Abstract

: In this paper we study business cycle correlations in the Eurozone, and its determinants. Additionally, we also analyze the determinants of the lead and lag behavior of business cycles in the Eurozone. We explore the relevance, in the Eurozone context, of the determinants of business cycle synchronization identified in the literature, namely bilateral trade intensity, dissimilarity of labor market rigidity, net external migration, dissimilarity in industrial structures, financial openness, and FDI relations. We estimate a simultaneous 4-equations model by OLS and 3SLS to investigate empirically the above mentioned determinants of business cycle correlation. Bilateral trade relations present a positive influence on business cycle correlations, while the dissimilarity of labor market rigidity presents a negative influence. The rest of the above mentioned variables are non-significant. In what concerns the determinants of the lead and lag behavior results show that the member states of the Eurozone that usually lead the cycle are the ones that are wealthier, with strict employment legislation, more specialized in construction and finance sectors, and more prone to international capital movements.

Suggested Citation

  • Hasan Engin Duran & Alexandra Ferreira-Lopes, 2015. "Determinants of Co-movement and of Lead and Lag Behavior of Business Cycles in the Eurozone," Working Papers Series 2 15-02, ISCTE-IUL, Business Research Unit (BRU-IUL).
    • Handle: RePEc:isc:iscwp2:bruwp1502
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    More about this item

    Keywords

    Bilateral Business Cycles Correlations; Lead and Lag Behavior of Business Cycles; Labor Market Flexibility; External Migration;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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