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Bank of Finland Research Discussion Papers, Bank of Finland

No 16/2010:
A new approach to analyzing convergence and synchronicity in growth and business cycles: cross recurrence plots and quantification analysis

Patrick M Crowley () and Aaron Schultz ()

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 to address the 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 to be non-linear in nature. Many of the euro area member states display what is termed here ‘intermittency’ in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could introduce further challenges in managing the country-specific effects of the common monetary policy in the euro area.

Keywords: Euro area; business cycles; growth cycles; recurrence plots; non-stationarity; complex systems; surrogate analysis; (follow links to similar papers)

JEL-Codes: C65; E32; F15; (follow links to similar papers)

53 pages, September 20, 2010

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