A Comparison of Business Cycles Synchronization in the Euro Area and Some Potential Monetary Unions

Stanislav Kappel

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2015, vol. 63, issue 4, 1277-1285

Abstract: Synchronization of business cycle is one of the main criteria for creation of a monetary union. With increasing synchronization of business cycle, a probability of occurrence of demand and supply shocks, which are asymmetric, decreases. The aim of this contribution is to evaluate synchronicity of business cycle in the euro area and some potential monetary unions. There are MERCOSUR (i.e. Argentina, Brazil, Paraguay, Uruguay and Venezuela), NAFTA (Canada, Mexico and the United States of America). For this aim, correlation analysis and two indexes of cyclical components of GDP are used. The cyclical components of GDP are obtained due to the Hodrick-Prescott filter. The results indicate a high degree of business cycles synchronization among states of the euro area (especially in countries of so called core of the euro area) and states of NAFTA. In opposite, a lower degree of business cycles synchronization was reached among states of MERCOSUR. According to the criterion of business cycle synchronization, NAFTA is more appropriate candidate than MERCOSUR for creation monetary area.

Keywords: business cycle; monetary systems; monetary union; economic integration; monetary policy; the euro area; NAFTA; MERCOSUR (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mup:actaun:actaun_2015063041277

DOI: 10.11118/actaun201563041277

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