BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 6/2003:
The euro goes East. Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEEs
Jarko Fidrmuc ()
and Iikka Korhonen ()
Abstract: We assess the correlation of supply and demand shocks
between current countries in the euro area and EU accession candidates from
1993/1995 to 2002. Supply and demand shocks are recovered from estimated
structural VAR models of output growth and inflation. Notably, the economic
slowdown between 2000 and 2002 increased heterogeneity of business cycles
between the euro area and acceding counties. We find that several acceding
countries have a quite high correlation of underlying shocks with the euro
area and conclude that continuing integration within the EU is likely to
align the business cycles of these countries in a manner similar to the
synchronisation of supply and demand shocks we document for the EU in the
1990s.
Keywords: optimum currency area; EU enlargement; structural VAR; (follow links to similar papers)
JEL-Codes: E32; F42; (follow links to similar papers)
24 pages, May 25, 2003
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