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The evolution of regional economic interlinkages in Europe

María Gadea (), Ana Gómez-Loscos () and Danilo Leiva-Leon ()

No 1705, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper studies the dynamics of the propagation of regional business cycle shocks in Europe and uncovers new features of its underlying mechanisms. To address the lack of high frequency data at the regional level, we propose a new method to measure timevarying synchronization in small samples that combines regime-switching models and dynamic model averaging. The results indicate that: (i) in just two years, the Great Recession synchronized Europe twice as much as the European Union integration process did over several decades; (ii) Ile de France is the region acting as the main channel for the transmission of business cycle shocks in Europe; followed by Inner London and Lombardia; and (iii) we identify a nonlinear relationship between sectoral composition and regional synchronization, which was amplified in the wake of the Great Recession. Similarities in services sectors are primarily responsible for this nonlinear relationship.

Keywords: business cycle; sectoral composition; regime-switching; model averaging. (search for similar items in EconPapers)
JEL-codes: C31 C32 E32 R11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ure
Date: 2017-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1705

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