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Output gap similarities in Europe: Detecting country groups

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  • Ahlborn, Markus
  • Wortmann, Marcus

Abstract

The literature on business cycle synchronization in Europe frequently presumes an alleged 'core-periphery' pattern without providing empirical verification of the underlying cyclical (dis)similarities or the supposed but unobservable 'European business cycle(s)'. To provide a data-based country group analysis, we apply a fuzzy clustering approach to quarterly output gap series of 27 European countries over the period 1996-2015. Our results confirm the existence of a persistent core cluster as opposed to clusters on the Eastern and Southern European peripheries, highlighting the inadequate composition of the euro area (EA). Moreover, we find that Germany's business cycle is not a suitable substitute for the core. By analyzing the relation between the identified 'European core business cycle' and the peripheral cycles over time, we show diverging patterns for the southern periphery after the financial crisis, casting doubt on the endogeneity properties of the EA.

Suggested Citation

  • Ahlborn, Markus & Wortmann, Marcus, 2017. "Output gap similarities in Europe: Detecting country groups," University of Göttingen Working Papers in Economics 305, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:305
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    References listed on IDEAS

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    Cited by:

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    2. Díaz-Roldán Carmen & Filho Fernando Ferrari & da Silva Bichara Julimar, 2021. "Fiscal Rules in Economic Crisis: The Trade-off Between Consolidation and Recovery, from a European Perspective," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 199-216, January.

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    More about this item

    Keywords

    business cycles; core-periphery; euro area; fuzzy cluster analysis;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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