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Business cycle convergence in EMU: A second look at the second moment

  • Crespo Cuaresma , Jesus

    ()

    (Department of Economics, Vienna University of Economics and Business)

  • Fernandez Amador, Octavio

    ()

    (Department of Economics, University of Innsbruck)

We analyse the dynamics of the standard deviation of demand shocks and of the demand component of GDP across countries in the European Monetary Union (EMU). This analysis allows us to evaluate the patterns of cyclical comovement in EMU and put them in contrast to the cyclical performance of the new members of the EU and other OECD countries. We use the methodology put forward in Crespo-Cuaresma and Fernandez-Amador (2010), which makes use of sigma-convergence methods to identify synchronization patterns in business cycles. The Eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s. The new EU members have also experienced a strong pattern of convergence from 1998 to 2005, when a strong divergence trend appears. An enlargement of the EMU to 22 members would not decrease its optimality as a currency area. There is evidence for some European idiosyncrasy as opposed to a world-wide comovement.

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Paper provided by University of Salzburg in its series Working Papers in Economics and Finance with number 2010-13.

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Length: 40 pages
Date of creation: 10 Sep 2010
Date of revision:
Handle: RePEc:ris:sbgwpe:2010_013
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