A New Approach to Analyzing Convergence and Synchronicity in Growth and Business Cycles: Cross Recurrence Plots and Quantification Analysis

Crowley, Patrick and Aaron, Schultz (2010): A New Approach to Analyzing Convergence and Synchronicity in Growth and Business Cycles: Cross Recurrence Plots and Quantification Analysis.

Abstract

Convergence and synchronisation of business and growth cycles are important issues in the efficient formulation of euro area economic policies, and in particular European Central Bank (ECB) monetary policy. Although several studies in the economics literature address the issue of synchronicity of growth within the euro area, this is the first study to address this issue using cross-recurrence analysis. The main findings are that member state growth rates had largely converged before the introduction of the euro, but there is a wide degree of different synchronisation behaviours which appear non-linear in nature. Many of the euro area member states display what is termed here as "intermittency" in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could cause problems in future implementation of euro area monetary policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Euro area; business cycles; growth cycles; recurrence plots; recurrence quantification analysis; non-stationarity; complex systems; surrogate analysis.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

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