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Determinants of Co-movement and of Lead and Lag Behavior of Business Cycles in the Eurozone

Hasan Engin Duran () and Alexandra Lopes ()

No 15-02, Working Papers Series 2 from ISCTE-IUL, Business Research Unit (BRU-IUL)

Abstract: : In this paper we study business cycle correlations in the Eurozone, and its determinants. Additionally, we also analyze the determinants of the lead and lag behavior of business cycles in the Eurozone. We explore the relevance, in the Eurozone context, of the determinants of business cycle synchronization identified in the literature, namely bilateral trade intensity, dissimilarity of labor market rigidity, net external migration, dissimilarity in industrial structures, financial openness, and FDI relations. We estimate a simultaneous 4-equations model by OLS and 3SLS to investigate empirically the above mentioned determinants of business cycle correlation. Bilateral trade relations present a positive influence on business cycle correlations, while the dissimilarity of labor market rigidity presents a negative influence. The rest of the above mentioned variables are non-significant. In what concerns the determinants of the lead and lag behavior results show that the member states of the Eurozone that usually lead the cycle are the ones that are wealthier, with strict employment legislation, more specialized in construction and finance sectors, and more prone to international capital movements.

Keywords: Bilateral Business Cycles Correlations; Lead and Lag Behavior of Business Cycles; Labor Market Flexibility; External Migration (search for similar items in EconPapers)
JEL-codes: C3 E32 F15 F21 F22 F44 (search for similar items in EconPapers)
Date: 2015-04-15
New Economics Papers: this item is included in nep-eec and nep-mac
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Journal Article: Determinants of co-movement and of lead and lag behavior of business cycles in the Eurozone (2017) Downloads
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