Research Discussion Papers, Bank of Finland
One Money, Several Cycles? Evaluation of European business cycles using model-based cluster analysis
Abstract: Optimal currency area theory suggests that business cycle
co-movement is a sufficient condition for monetary union, particularly if
there are low levels of labour mobility between potential members of the
monetary union. Previous studies of co-movement of business cycle variables
found that there was a core of member states in the EU that could be
grouped together as having similar business cycle co-movements, but these
studies have always used Germany as the country against which to compare.
This study updates and extends corresponding previous analyses. More
specifically, it correlates the countries against both German and euro area
macroeconomic aggregates and uses more recent techniques in cluster
analysis, namely model-based clustering.
Keywords: business cycles; co-movement; optimal currency areas; model-based cluster analysis; (follow links to similar papers)
JEL-Codes: F15; F31; (follow links to similar papers)
47 pages, February 27, 2008
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