Has the Euro changed business cycle synchronization? Evidence from the core and the periphery

Sybille Lehwald

Empirica, 2013, vol. 40, issue 4, 655-684

Abstract: Using a Bayesian dynamic factor model, I examine the comovement of output, investment and consumption growth among Euro area countries before and after the introduction of the Euro. For that purpose, I compare a pre-Euro period (1991–1998) to a Euro period (2000–2010) and identify a common Euro factor for each period separately. I find that the comovement of main macroeconomic variables and the common factor increases for core Eurozone countries from the first to the second period, while it decreases for most peripheral economies. This can be interpreted as a rise in business cycle synchronization for the core and a respective decline for the periphery. Different to the implications made by the endogeneity argument of currency areas (Frankel and Rose in Econ J 108(449):1009–1025, 1998 ), my evidence suggest that the introduction of the Euro has fostered imbalances between core and peripheral Eurozone countries. Copyright Springer Science+Business Media New York 2013

Keywords: European business cycles; Euro; Optimum currency area; Core and periphery; Dynamic factor analysis; C11; C32; E32; F41; F42 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (39)

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Working Paper: Has the Euro Changed Business Cycle Synchronization? Evidence from the Core and the Periphery (2012)
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DOI: 10.1007/s10663-012-9205-8

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