Has the Euro changed the Business Cycle?

Müller, Gernot, Zeno Enders and Philip Jung ()
Authors registered in the RePEc Author Service: Gernot J. Müller

No 9233, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In contrast to the notion that the exchange-rate regime is non-neutral, there is little evidence that EMU has systematically changed the European business cycle. In fact, we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro. Exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross-country correlations. To account for this finding, we develop a two-country business cycle model which is able to replicate key features of European data. In particular, the model correctly predicts a limited effect of EMU on standard business cycles statistics. However, further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism. Cross-country spillovers have become relatively more, domestic shocks relatively less important in accounting for economic fluctuations under EMU. This explains why there is little change in unconditional volatilities.

Keywords: European business cycles; Euro; Optimum currency area; Emu; Monetary policy; Exchange rate regime; Cross-country spillovers (search for similar items in EconPapers)
JEL-codes: E32 F41 F42 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Has the Euro changed the business cycle? (2013)
Working Paper: Has the Euro changed the Business Cycle? (2010)
Working Paper: Has the Euro changed the Business Cycle? (2009)
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