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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