Research Discussion Papers, Bank of Finland
No 11/2015:
Are monetary unions more synchronous than non-monetary unions?
Patrick Crowley ()
and Christopher Trombley
Abstract: Within currency unions, the conventional wisdom is that
there should be a high degree of macroeconomic synchronicity between the
constituent parts of the union. But this conjecture has never been formally
tested by comparing sample of monetary unions with a control sample of
countries that do not belong to a monetary union. In this paper we take
euro area data, US State macro data, Canadian provincial data and
Australian state data — namely real Gross Domestic Product (GDP) growth,
the GDP deflator growth and unemployment rate data — and use techniques
relating to recurrence plots to measure the degree of synchronicity in
dynamics over time using a dissimilarity measure. The results show that for
the most part monetary unions are more synchronous than non-monetary
unions, but that this is not always the case and particularly in the case
of real GDP growth. Furthermore, Australia is by far the most synchronous
monetary union in our sample.
Keywords: business cycles; growth cycles; frequency domain; optimal currency area; macroeconomic synchronization; monetary policy; single currency; (follow links to similar papers)
JEL-Codes: C49; E32; F44; F45; F62; (follow links to similar papers)
46 pages, July 31, 2015
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