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Business Cycle Regimes in CEECs Production: A Threshold SURE Approach

  • Aslanidis, Nektarios
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    We use a threshold seemingly unrelated regressions specification to assess whether the Central and East European countries (CEECs) are synchronized in their business cycles to the Euro-area. This specification is useful in two ways: First, it takes into account the common institutional factors and the similarities across CEECs in their process of economic transition. Second, it captures business cycle asymmetries by allowing for the presence of two distinct regimes for the CEECs. As the CEECs are strongly affected by the Euro-area these regimes may be associated with Euro-area expansions and contractions. We discuss representation, estimation by maximum likelihood and inference. The methodology is illustrated by using monthly industrial production in 8 CEECs. The results show that apart from Lithuania the rest of the CEECs experience “normal†growth when the Euro-area contracts and “high†growth when the Euro-area expands. Given that the CEECs are “catching up†with the Euro-area this result shows that most CEECs seem synchronized to the Euro-area cycle. Keywords: Threshold SURE; asymmetry; business cycles; CEECs. JEL classification: C33; C50; E32.

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    File URL: http://hdl.handle.net/2072/5318
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    Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/5318.

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    Date of creation: 2007
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    Handle: RePEc:urv:wpaper:2072/5318
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    1. Eickmeier, Sandra & Breitung, Jorg, 2006. "How synchronized are new EU member states with the euro area? Evidence from a structural factor model," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 538-563, September.
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    13. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Characterising the Business Cycle for Accession Countries," Working Papers 261, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    14. Frenkel, Michael & Nickel, Christiane & Schmidt, Günter, 1999. "Some shocking aspects of EMU enlargement," Research Notes 99-4, Deutsche Bank Research.
    15. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
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