The European and the Greek Business Cycles: Are they synchronized?

Leon, Costas (2006): The European and the Greek Business Cycles: Are they synchronized? Unpublished.

Abstract

Recent developments in the business cycle empirical literature for the developed economies show that there is an increasing synchronization of the cycles in the sense that cycles are of approximately equal wave length, and exhibit similar lead-lag patterns and decreasing volatility over time, although this is not a universally accepted view. In this study I employ spectral analysis and a VAR model to evaluate the length, the volatility and the transmission mechanism of stochastic shocks between Greece and the Eurozone for the period 1980-2005 with quarterly data. The results verify that both areas exhibit lower volatility over time. However, synchronization of the cycles in terms of correlation and their transmission mechanism seems to become weaker over time.

• Item Type: MPRA Paper
• Additional Information: I would like to thank Bruno Eeckels, Bournemouth University, UK, for his useful comments and discussions.
• Institution: Department of International Economics and Development, Democritus University of Thrace, Komotini 69 100, Greece
• Language: English
• Keywords: Business Cycle Synchronization; Transmission Mechanisms; Eurozone; Greece
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles

References

Agresti, A. M., Mojon, B., 2001. Some stylised facts on the euro area business cycle. European Central Bank Working Paper 95.

Artis, M.J., Zhang, W., 1999. Further evidence on the international business cycle and the ERM. Oxford Economic Papers 51, 120-132.

Artis, M.J., Zhang, W., 1997. International business cycles and the ERM: Is there a European business cycle? International Journal of Finance and Economics 2, 1-16.

Baxter, M., King, R.G., 1999. Measuring business cycles: approximate band-pass filters for economic time series. The Review of Economics and Statistics 81, 575–593.

Bayoumi, T., Eichengreen B., 1996. Operationalising the theory of optimum currency areas. CEPR Discussion Paper 1484.

Bordes, C., Driscoll, M., 1990. Is Europe an optimum currency area?", de Pecunia, II, 2-3.

Brown, R.L., Durbin, J., Evans, J.,M., 1975. Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society, Series B, 49 163.

Breitung, J., Candelon, B., 2001. Is there a common european business cycle? New insights from a frequency domain analysis. Quarterly Journal of Economic Research 2001, 331-338.

Caporale, G. M., 1993. Is Europe an optimum currency area? Symmetric versus asymmetric shocks in the EC. National Institute Economic Review, May 1993.

Christodoulakis, N., Dimelis, S.P.,. Kollintzas, T., 1995. Comparisons of business cycles in the EC: Idiosyncracies and regularities, Economica, New Series, 62, 245.

Darvas, Z., Szapary, G., 2005. Business cycle sychronization in the enlarged EU. CEPR Discussion Paper 5179 Available at SSRN: http://ssrn.com/abstract=790806.

De Grauwe, P., Vanhaverbeke, W., 1993. Is Europe an optimum currency area? Evidence from regional data, in P. R. Masson and M. P. Taylor (eds.), Policy Issues in the Operation of Currency Unions, Cambridge University Press, Cambridge, 1993.

De Haan, J., Inklaar R., Sleijpen O., 2002. Have Business Cycles become more synchronized? Journal of Common Market Studies, 40, 1, 23-42.

Dogas, D., 1992. Definition and forecasting of the economic fluctuations in Greece. Studies of the Bank of Greece, 71. In Greek.

Dogas, D., 1980. Indices of economic conjucture. Definition and forecasting of economic fluctuations in Greece. Greek Economy, Bank of Greece. In Greek.

Eichengreen, B., 1991. Is Europe an optimum currency area? NBER Working Paper 3579.

Eickmeier, S., 2004. Business cycle transmission from the US to Germany. A structural factor approach. Discussion Paper, Series 1. Studies of the Economic Research Centre, 12/2004, Deutsche Bundesbank.

Enders, W., 1995. Applied Econometric Time Series, Wiley Series in Probability and Mathematical Statistics.

Favero, C., 2001. Applied Macroeconometrics. Oxford University Press.

Frankel, J.A., Rose, A.K., 1998. The endogeneity of the optimum currency area criteria. The Economic Journal 108, 1009-1025.

Hodrick, R. J., Prescott, E. C., 1980. Post-war U.S. business cycles: An empirical investigation. Discussion paper 451, Carnegie-Mellon University. Jagrič, T., 2002. Measuring business cycles – a dynamic perspective. Prikazi in analize X/1 (September 2002), Ljubljana, Banka Slovenije.

Johansen, S., Juselius, K., 1990. Maximum likelihood estimation and inference on cointegration. With applications to the demand of money. Oxford Bulletin of Economics and Statistics, 52, 169-210.

Johansen, S., Juselius, K., 1992. Testing structural hypothesis in a multivariate cointegration analysis in PPP and the UIP for UK. Journal of Econometrics, 53, 169-209. Johansen, S., Juselius, K, 1994. Identification of the long-run and the short-run structure. An application of the ISLM model. Journal of Econometrics, 63, 7-36.

Johansen, S., 1988. Statistical analysis of cointegration vectors. Journal of Economic Dynamic and Control, 12, 231-254.

Kenen, P.B., 1969. The optimum currency area: An eclectic view. In Mundell R.A., Swoboda A. (Eds.), Monetary Problems of the International Economy. University of Chicago Press, Chicago.

Krugman, P.R., 1991. Increasing returns and economic geography. Journal of Political Economy, 99(3), 483-499.

Luginbuhl, R., Koopman, J.S., 2003. Convergence in european GDP series, Tinbergen Institute Discussion Paper TI 2003- 031/4.

McKinnon, R., 1963. Optimum currency areas. The American Economic Review 53, (4), 717-725.

Mundell, R.A., 1961. A theory of optimum currency areas. The American Economic Review 51 (4), 657-665.

Stock J., Watson, M., H., 2002. Has the business cycle changed and why? NBER Working Paper Series 9127. NBER, September 2002.

Tavlas, G.S., 1993. The ‘New’ theory of optimum currency areas. The World Economy, 663-685.

Varelas, E., Kaskarelis, E., 1996. Stylized facts and macroeconomic models for the postwar Greece 1960-1990. Agricultural Bank of Greece. In Greek.

Voloudakis, E., 1959. Statistical indices and short-run economic forecasting: recent developments. Review of Economic and Political Sciences. 153-71. In Greek.

Von Hagen, J., Neumann, M.J.M., 1994. Real exchange rates within and between currency areas: how far away is EMU? Review of Economics and Statistics.

Zani A., Pantelis, N., Panethimitakis, A., 2004. Stylized facts of the business cycles 1960-2000. Discussion Paper, April 2004, University of Athens, Department of Economics.