Abstract
This paper studies the process of business cycle synchronization in the European Union and the euro area. As our baseline methodology we adopt rolling window correlation coefficients of various economic indicators, observed since 2000. Among the indicators, we distinguish between real economic indicators, like the real GDP growth and unemployment, and nominal indicators, like inflation and government budget. Given the direct implication of this kind of analysis for the common monetary policy of the European Central Bank (ECB), special attention is paid to the pattern of business cycle synchronization in the core and peripheral members of the euro area. Our analysis of quarterly data covering the first two decades of the euro area shows that there was a certain synchronization tendency in the first years of the common currency. However, the European debt crisis halted the economic integration within the European Union and—even more so—within the euro area. Since the ECB can to a large extent intervene only with “one-size-fits-all” monetary policy instruments, this renders increasingly cumbersome the conduct of stabilisation policies within the euro area.
Highlights
Stiftung Marktwirtschaft, Europe, Energy, Competition, Growth and Development Policy, 10117 Berlin, Abstract: This paper studies the process of business cycle synchronization in the European Union and the euro area
Rather than building a comprehensive measure of European Union (EU)-symmetry, we look at each single economic indicator, with the aim to get amore in depth understanding of the underlying economic forces
We show averages of country-level correlation coefficients calculated for important country groups, namely, EU, Euro, Euro core, Euro periphery and EU
Summary
Stiftung Marktwirtschaft, Europe, Energy, Competition, Growth and Development Policy, 10117 Berlin, Abstract: This paper studies the process of business cycle synchronization in the European Union and the euro area. Given the direct implication of this kind of analysis for the common monetary policy of the European Central Bank (ECB), special attention is paid to the pattern of business cycle synchronization in the core and peripheral members of the euro area. On its establishment in 1957, one of the core objectives of the European Economic Community (EEC) was the development of a common market offering free movement of goods, services, capital and people. This approach to integration was further emphasized with the establishment of the European Single Market and the European Union (EU) in 1993 and subsequently with the introduction of the Euro in 1999. This is even more important when the step of monetary integration is taken (Mundell 1961; McKinnon 1963; Kenen 1969; Eichengreen 1991; Gächter et al 2012)
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