Working Papers, Department of Economics, Lund University
How Similar Are European Business Cycles?
Abstract: In this paper, we focus on how European economic
integration has affected the synchronization and the magnitude of business
cycles among participating countries. We measure, based on bandpass
filtered data, the characteristics of European business cycles analyzing to
what extent they have become more similar over time. We also consider the
role of other factors such as differences in fiscal and monetary policy,
border effects, and trade intensity. Our main finding is that European
business cycles are highly synchronized, although we also find that
synchronization was higher during periods with highly flexible exchange
rates. In addition we find a positive tradeoff between timing and magnitude
such that more synchronization coincides with larger relative magnitude.
These results raise concern about the consequences of a common monetary
policy within EMU.
Keywords: Business cycles; symmetry and co-movement of cycles; magnitude of cycles; economic integration; monetary union; (follow links to similar papers)
JEL-Codes: E32; F15; (follow links to similar papers)
36 pages, March 11, 2004
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