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One Money, One Cycle? The EMU Experience

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  • Martin Gächter

    () (Oesterreichische Nationalbank, Foreign Research Division)

  • Aleksandra Riedl

    () (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

We examine whether the introduction of the euro had a significantly positive impact on the synchronization of business cycles among members of Economic and Monetary Union (EMU) which might arise due to the lack of country-specific monetary policy shocks in the euro area. Empirical evidence on this relationship is rare so far and su ers from methodical weaknesses, such as the absence of time variability, which is crucial for addressing this issue. Using a synchronization index that is constructed on a year-by-year basis (1993{2011), we uncover a strong and robust empirical finding: the adoption of the euro has significantly increased the correlation of member countries' business cycles above and beyond the e ect of higher trade integration. Thus, our results substantially strengthen the conclusion by Frankel & Rose (1998), i.e. a country is more likely to satisfy the criteria for entry into a currency union ex post rather than ex ante. Remarkably, however, this reasoning is even verified when controlling for the e ect of increased trade linkages implied by entering a currency union.

Suggested Citation

  • Martin Gächter & Aleksandra Riedl, 2013. "One Money, One Cycle? The EMU Experience," Working Papers 186, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:186
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    Cited by:

    1. Cinzia Alcidi & Mathias Dolls & Clemens Fuest & Carla Krolage & Florian Neumeier, 2017. "The Nature of Shocks in the Eurozone and Their Absorption Channels," EconPol Policy Reports 3, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. repec:eee:jpolmo:v:40:y:2018:i:2:p:284-304 is not listed on IDEAS
    3. repec:eee:finana:v:61:y:2019:i:c:p:274-283 is not listed on IDEAS
    4. Jürgen Bierbaumer-Polly & Peter Huber & Petr Rozmahel, 2015. "The Impact of EU Accession on Regional Business Cycle Synchronisation and Sector Specialisation," WIFO Working Papers 494, WIFO.
    5. repec:cnb:ocpubv:as17 is not listed on IDEAS
    6. repec:kap:openec:v:28:y:2017:i:5:d:10.1007_s11079-017-9465-9 is not listed on IDEAS
    7. Ansgar Belke & Clemens Domnick & Daniel Gros, 2017. "Business Cycle Synchronization in the EMU: Core vs. Periphery," Open Economies Review, Springer, vol. 28(5), pages 863-892, November.
    8. Martin Gächter & Alexander Gruber & Aleksandra Riedl, 2017. "Wage Divergence, Business Cycle Co-Movement and the Currency Union Effect," Journal of Common Market Studies, Wiley Blackwell, vol. 55(6), pages 1322-1342, November.
    9. repec:eee:jmacro:v:55:y:2018:i:c:p:12-27 is not listed on IDEAS
    10. Jürgen Bierbaumer-Polly & Peter Huber & Petr Rozmahel, 2016. "Regional Business-Cycle Synchronization, Sector Specialization and EU Accession," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 544-568, May.
    11. Mark Mink & Jan Jacobs & Jakob de Haan & Jakob de Haan, 2016. "Euro Area Imbalances," CESifo Working Paper Series 6291, CESifo Group Munich.
    12. Campos, Nauro F. & Jarko, Fidrmuc & Iikka, Korhonen, 2017. "Business cycle synchronisation in a currency union : Taking stock of the evidence," Research Discussion Papers 28/2017, Bank of Finland.
    13. repec:eee:jimfin:v:77:y:2017:i:c:p:77-98 is not listed on IDEAS

    More about this item

    Keywords

    Business cycles; EMU; endogeneity; optimum currency areas;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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