Time-varying Business Cycles Synchronisation in Europe

JEL codes: 
C32, E32, F43, O52
Version Date: 
Nov 2013
Abstract: 

The 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 1980-2009. The paper provides evidence that changes in the business cycle synchronisation correspond to institutional changes that have taken place at a European level. Business cycle synchronisation has moved in a direction positive for the operation of a single currency suggesting that the common monetary policy is less costly in terms of lost flexibility at the national level. Thus, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to the lack of cyclical synchronisation.

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