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Interregional Trade, Specialization, and the Business Cycle: Policy Implications for the EMU

Carlo Gianelle (), Letizia Montinari and Simone Salotti

Journal of Business Cycle Research, 2017, vol. 13, issue 1, 1-27

Abstract: Abstract In this paper we analyse the effects of trade and specialisation on regional business cycle co-movement in the Economic and Monetary Union. Using a novel and unique bilateral regional trade dataset, we find that regions with stronger trade linkages and similar economic structures have more synchronized cycles. These results suggest that policies fostering regional specialization at the European level may reduce business cycle synchronization across regions and countries. This, in turn, might generate macroeconomic tensions in the common currency area. On the other hand, market integration policies can foster regional cycle synchronization and favour the functioning of the monetary union.

Keywords: European regions; Business cycle synchronization; Trade; Sectorial specialization; Economic and Monetary Union (search for similar items in EconPapers)
JEL-codes: R12 F44 E32 (search for similar items in EconPapers)
Date: 2017
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