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Has the Euro changed the Business Cycle?

  • Zeno Enders


    (University of Bonn)

  • Gernot J. Müller


    (University of Bonn)

In this paper we analyze European business cycles before and under EMU. Across the two periods we find 1) a significant decline in real exchange rate volatility, 2) significant changes in cross-country correlations, and 3) the volatility of macroeconomic fundamentals largely unchanged. We develop a two-country business cycle model and show that the calibrated model is able to replicate key features of the data prior to and under EMU.We find that the euro has a strong bearing on the transmission mechanism as cross-country spillovers increase substantially under EMU. As a result, foreign shocks become more and domestic shocks less important in accounting for the (unchanged) volatility of macroeconomic fundamentals.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 162.

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Length: 49
Date of creation: 31 May 2010
Date of revision:
Handle: RePEc:onb:oenbwp:162
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