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How Similar Are European Business Cycles?

  • U. Michael Bergman

    (Institute of Economics, University of Copenhagen)

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    In this paper, we focus on how European economic integration has affected the synchronization and the magnitude of business cycles among participating countries. We measure, based on bandpass filtered data, the characteristics of European business cycles analyzing to what extent they have become more similar over time. We also consider the role of other factors such as differences in fiscal and monetary policy, border effects, and trade intensity. Our main finding is that European business cycles are highly synchronized, although we also find that synchronization was higher during periods with highly flexible exchange rates. In addition we find a positive tradeoff between timing and magnitude such that more synchronization coincides with larger relative magnitude. These results raise concern about the consequences of a common monetary policy within EMU.

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    File URL: http://www.econ.ku.dk/epru/files/wp/wp-04-13.pdf
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    Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-13.

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    Length: 26 pages
    Date of creation: Mar 2004
    Date of revision: Nov 2004
    Handle: RePEc:kud:epruwp:04-13
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    Web page: http://www.econ.ku.dk/epru/
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    1. Máximo Camacho & Gabriel Pérez-Quirós & Lorena Saiz, 2004. "Are european business cycles close enough to be just one?," Banco de Espa�a Working Papers 0408, Banco de Espa�a.
    2. Inklaar, Robert & de Haan, Jakob, 2001. "Is There Really a European Business Cycle? A Comment," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 215-20, April.
    3. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
    4. Christodoulakis, Nicos & Dimelis, Sophia P & Kollintzas, Tryphon, 1995. "Comparisons of Business Cycles in the EC: Idiosyncracies and Regularities," Economica, London School of Economics and Political Science, vol. 62(245), pages 1-27, February.
    5. Traistaru, Iulia, 2004. "Transmission channels of business cycles synchronization in an enlarged EMU," ZEI Working Papers B 18-2004, ZEI - Center for European Integration Studies, University of Bonn.
    6. James H. Stock & Mark W. Watson, 2005. "Understanding Changes In International Business Cycle Dynamics," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 968-1006, 09.
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