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Has the Euro changed the Business Cycle?

Author Info

Listed author(s):
  • Zeno Enders

    ()

    (University of Bonn)

  • Gernot J. Müller

    ()

    (University of Bonn)

Abstract

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
Handle: RePEc:onb:oenbwp:162
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Keywords: European business cycles; Euro; Optimum Currency Area; EMU; Monetary Policy; Exchange rate regime; Cross-country spillovers;

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Find related papers by JEL classification:
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
  • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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