Are the Eurozone Financial and Business Cycles Convergent Across Time and Frequency?

Dalia Ibrahim

Computational Economics, 2023, vol. 61, issue 1, No 14, 389-427

Abstract: Abstract This paper examines the Eurozone (EZ) convergence through Financial and Business cycles frequencies over time. Specifically, I use the Maximum Overlap Discrete Wavelet Transform (MODWT) in order to analyze whether financial cycles on the one hand and business cycles on the other hand are inter-countries synchronized, interconnected, interrelated and co-variant across time and frequencies. I also study if Financial and Business cycles are intra-countries synchronized, interconnected, interrelated, co-variant and phased across time and frequencies. I find that: (i) the EZ is mostly divergent at short term; (ii) the monetary policy led to a boom period between 2002 and 2006 that masked the already existing divergences in the EZ; (iii) that business and financial cycles grew in a case-by-case macroeconomic and financial environment which led to an exacerbation of the divergences; (iv) the lack of synchronization at all frequencies and over time intra-country and inter-country precludes the monetary policy to play its countercyclical role.

Keywords: Financial cycles; Business cycles; EMU; Synchronicity; Wavelet analysis (search for similar items in EconPapers)
JEL-codes: C49 C61 E32 E44 F45 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10614-021-10212-8

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