Trends and cycles in Euro area real GDP

Leigh Drake and Terence Mills

Applied Economics, 2010, vol. 42, issue 11, 1397-1401

Abstract: This article examines the time-series properties of real Gross Domestic Product (GDP) in the Euro area as a whole, both prior to and after the adoption of the Euro in January 1999. We employ the relatively recent 'optimal approximation' band pass filter developed by Christiano and Fitzgerald (2003) in order to identify a Eurozone business cycle. We also utilize two alternative assumptions regarding the behaviour of the trend component of Euro area real GDP. The empirical results suggest that the single currency experiment appears to have reduced trend growth in the Eurozone, both ex ante during the Maastricht nominal convergence phase, and also ex post, during the period 2001Q1 to 2006Q1. With respect to cyclical behaviour, we identify a very robust measure of the Eurozone business cycle in the post-1994 period which does not appear to be sensitive to the particular assumption made regarding the trend rate of growth of real GDP.

Date: 2010
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DOI: 10.1080/00036840701721372

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