Research Discussion Papers, Bank of Finland
No 33/2013:
Is Europe growing together or growing apart?
Patrick Crowley ()
, Enrique Garcia and Chee-Heong Quah
Abstract: While it is painfully clear that the ’ever closer’
monetary and financial union in the EU has run into serious trouble there
has been very little study of the degree to which the countries have become
similar or different in their economic growth dynamics. This paper
therefore goes beyond the traditional convergence literature to look at
their dynamic convergence and explore the path of their changing similarity
in the frequency domain. The results show that while a core group of
countries may be developing together, there appears to be at least seven
identifiable groups of countries with different growth dynamics. Greece
appears to be in a class on its own. Business cycles are important but
longer-term trends and higher frequency fluctuations all have a role to
play in facilitating adjustment. These results provide awkward implications
for policy, particularly for those who thought that simply having a union
would draw countries closer together (endogenous OCA criteria).
Keywords: business cycles; growth cycles; frequency domain; wavelet analysis; cluster analysis; euro area; European Union; optimal currency area; (follow links to similar papers)
JEL-Codes: C49; E32; (follow links to similar papers)
31 pages, December 18, 2013
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