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Assessing European business cycles synchronization

Listed author(s):
  • Kovačić, Zlatko
  • Vilotić, Miloš

Objectives: We analyzed the level of economic integration in Europe by analyzing the degree of growth cycle synchronization between 36 countries and its evolution over the past 17 years. Information whether the business cycles in a currency union are synchronized or not is of key importance for policymakers, because lack of synchronization will lead to sub-optimal common monetary policy. The article has three objectives: extend the literature on the business cycles synchronization by using dataset that includes countries that have never been analyzed before, test the robustness of the results to extraction and synchronization measures used and propose new method for assessing evolution of the synchronization over time. Data/methods: Quarterly GDP series from Eurostat database covering period 2000q1-2016q3 were used with two exceptions (industrial productions indexes for Bosnia and Herzegovina and Montenegro). Series were prepared by removing seasonal component using X13-ARIMA procedure. To assess robustness of synchronization tests results to alternative methods of detrending, business cycles were extracted using two filters: Corbae-Ouliaris ideal band filter and double Hodrick-Prescott filter. For assessing synchronization of the business cycles two methods were used: concordance index and cross-correlation function. Rolling cross-correlations at three lags were used to assess evolution of synchronization over time. Conclusions: Both concordance index and cross-correlations indicated that business cycles of most old EU members are synchronized with EU cycle. However, rolling cross-correlations suggested that this synchronization decreased after 2012. Majority of new EU members cycles were weakly or not at all synchronized with EU cycle until 2004/5. After 2004 most of them were synchronized in the same quarter but with greater variations between countries. For most of them after 2010/12 the degree of synchronization dropped significantly. These results are quite robust across the cycles extraction and synchronization measures used.

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File URL: https://mpra.ub.uni-muenchen.de/79990/1/MPRA_paper_79990.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 79990.

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Date of creation: 01 May 2017
Handle: RePEc:pra:mprapa:79990
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  1. Michael Artis & George Chouliarakis & P. K. G. Harischandra, 2011. "Business Cycle Synchronization Since 1880," Manchester School, University of Manchester, vol. 79(2), pages 173-207, March.
  2. U. Michael Bergman & Lars Jonung, 2011. "Business Cycle Synchronization In Europe: Evidence From The Scandinavian Currency Union," Manchester School, University of Manchester, vol. 79(2), pages 268-292, March.
  3. Cüneyt Akar, 2016. "Analyzing the Synchronization between the Financial and Business Cycles in Turkey," Journal of Reviews on Global Economics, Lifescience Global, vol. 5, pages 25-35.
  4. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  7. Sofia Gouveia, 2014. "Business cycle correlation between the Euro area and the Balkan countries," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 7(1), pages 33-49, April.
  8. Massmann, Michael & Mitchell, James, 2003. "Reconsidering the evidence: Are Eurozone business cycles converging," ZEI Working Papers B 05-2003, University of Bonn, ZEI - Center for European Integration Studies.
  9. Harding, Don & Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May.
  10. Papageorgiou, Theofanis & Michaelides, Panayotis G. & Milios, John G., 2010. "Business cycles synchronization and clustering in Europe (1960-2009)," Journal of Economics and Business, Elsevier, vol. 62(5), pages 419-470, September.
  11. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  12. Michael Massmann & James Mitchell & Martin Weale, 2003. "Business Cycles and Turning Points: A Survey of Statistical Techniques," National Institute Economic Review, National Institute of Economic and Social Research, vol. 183(1), pages 90-106, January.
  13. Veaceslav Grigoras & Irina Eusignia Stanciu, 2016. "New evidence on the (de)synchronisation of business cycles: Reshaping the European business cycle," International Economics, CEPII research center, issue 147, pages 27-52.
  14. Saša Obradović & Vladimir Mihajlović, 2013. "Synchronization of Business Cycles in the Selected European Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 759-773, December.
  15. Kolasa, Marcin, 2013. "Business cycles in EU new member states: How and why are they different?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 487-496.
  16. Peter C. B. Phillips & Sainan Jin, 2015. "Business Cycles, Trend Elimination, and the HP Filter," Cowles Foundation Discussion Papers 2005, Cowles Foundation for Research in Economics, Yale University.
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