Business Cycle Synchronisation in EU: A time-varying approach

Degiannakis, Stavros and Duffy, David and Filis, George (2014): Business Cycle Synchronisation in EU: A time-varying approach. Published in: Scottish Journal of Political Economy , Vol. 4, No. 61 (2014): pp. 348-370.

Abstract

This paper investigates the time-varying correlation between the EU12-wide business cycle and the initial EU12 member-countries based on Scalar-BEKK and multivariate Riskmetrics model frameworks for the period 1980-2012. The paper provides evidence that changes in the business cycle synchronisation correspond to major economic events that have taken place at a European level. In the main, business cycle synchronisation until 2007 had moved in a direction positive for the operation of a single currency, suggesting that the common monetary policy was less costly in terms of lost flexibility at the national level. However, as a result of the Great Recession of 2007 and the subsequent Eurozone Crisis a number of periphery countries, most notably Greece, have experienced desynchronisation of their business cycles with the EU12-wide cycle. Nevertheless, for most countries, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to a lack of cyclical synchronisation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Scalar-BEKK, Multivariate Riskmetrics, time varying correlation, EU business cycle, business cycle synchronisation.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F44 - International Business Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe

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