Business cycle transmission between France and United Kingdom

Mateusz Dadej

Journal of Economic Studies, 2023, vol. 50, issue 8, 1926-1938

Abstract: Purpose - The literature mostly investigates the business cycle transmission of the United Kingdom (UK) and France as a part of a wider group (e.g. European Exchange Rate Mechanism or G7), despite their historical links and regional significance. Thus, herein paper aims to analyse the inter-dependence of these economies and how a shock from one of them affects the other for the data since 1978 to 2019. Design/methodology/approach - In this paper, first, preliminary statistics were calculated in order to describe the historical relationship between these countries. The econometric part estimates the vector auto-regression model (VAR) to assess the inter-dependence of the economies. VAR model allows further to inspect the impulse response functions that shows the shock dynamics from one country to another. In order to verify if a shock from one of the economies is important to another, the study uses granger causality test. Findings - The study establishes a strong link between these countries. A business cycle is transmitted significantly between the economies of France and UK, with a single standard deviation shock from France resulting in a long term effect of 0.4% change in gross domestic product (GDP) of UK and 1% vice versa. Additionally changes in GDP of both of the countries significantly Granger-cause change to GDP of the corresponding economy. Originality/value - This is the first empirical study investigating the business cycle transmission between France and UK and providing a quantitative assessment of their inter-dependence.

Keywords: Business cycle; France; UK; England; VAR (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-01-2023-0044

DOI: 10.1108/JES-01-2023-0044

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