Macroeconomic imbalances and business cycle synchronization. Why common economic governance is imperative for the Eurozone

Elizaveta Lukmanova and Gabriele Tondl ()

Economic Modelling, 2017, vol. 62, issue C, 130-144

Abstract: This paper investigates a new category of influential factors on business cycle synchronization (BCS), so far hardly regarded in the BCS literature. It provides an empirical assessment of the impact of macroeconomic imbalances, as monitored by the European Commission by the scoreboard indicators since 2011, on BCS in the Euozone. We use a quarterly data set covering the period 2002–2012 and estimate the direct and indirect effects of macroeconomic imbalances in the pre- and post-crisis period in a simultaneous equations model. Business cycle correlation between EA members is measured by the recently proposed dynamic conditional correlation of Engle (2002) which can better identify synchronous and asynchronous behaviour of BC than the commonly used measures. We find that appearing differences between EA members in current account, in government deficit and public debt, in private debt and unit labor cost developments have reduced BCS in the EA, even more in the post-crisis period than before. Moreover, these explanatory factors of BCS, generally reinforce each other and are also influenced by other critical macro imbalances. Since BCS is essential in a monetary union, this paper provides clear support that a stronger, common economic governance would be important for the functioning and survival of the Eurozone.

Keywords: Business cycle synchronization; Macroeconomic imbalances; Monetary union; Euro Area; Simultaneous equations model; Panel data (search for similar items in EconPapers)
JEL-codes: C33 E32 E60 E61 F45 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999316303923
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:62:y:2017:i:c:p:130-144

DOI: 10.1016/j.econmod.2017.01.004

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().