Abstract
Further economic and monetary integration in Europe is currently on hold due to the crisis and even questions about the possible exile of Greece. Especially in those conditions, it is important, to see whether integrated Europe can handle future problems and if economic and monetary integration can be helpful or rather more problematic. The main aim of this paper is to check to what degree business cycles are synchronized in the Eurozone and the European Union and what the main determinants of business cycles synchronization are. To achieve this, the following steps have been taken. Firstly, we turn to optimum currency area theory, to see what conditions need to be met, if the European Union and the euro area can use common monetary policy to deal with some economic shocks. Then, all necessary methodological explanations are presented. Later on, the preliminary data analysis is employed to see how business cycles and their determinants were acting during the last 20 years. Finally, panel data analysis is used to check how those determinants actually influence business cycles synchronization. The main finding of the article is that even though business cycles synchronization has been progressing in the European Union and the euro area so does the specialization – divergence in production structure. This may result in less synchronized business cycles in the future.
Highlights
Further economic and monetary integration in Europe is currently on hold due to the crisis and even questions about the possible exile of Greece
We turn to optimum currency area theory, to see what conditions need to be meet, if the European Union and the euro area can use common monetary policy to deal with some economic shocks
If government limits its involvement in the economy, specialization measured in terms of employment might go even further and lead to more asymmetrical distribution of economic shocks
Summary
The main aim of this paper is to check to what degree business cycles are synchronized in the Eurozone and the European Union and what the main determinants of business cycles synchronization are. To achieve this following steps are taken. The structure of the paper is as follows: in section one the theoretical framework of traditional and recent optimum currency area concepts is briefly discussed. In section three the preliminary data analysis is employed to see how business cycles and their determinants were acting during last 20 years. In section four panel data analysis is used to check how those determinants influence business cycles synchronization.
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