One money, several cycles? Evaluation of European business cycles using model-based cluster analysis

Patrick Crowley

No 3/2008, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Optimal currency area theory suggests that business cycle co-movement is a sufficient condition for monetary union, particularly if there are low levels of labour mobility between potential members of the monetary union. Previous studies of co-movement of business cycle variables found that there was a core of member states in the EU that could be grouped together as having similar business cycle co-movements, but these studies have always used Germany as the country against which to compare. This study updates and extends corresponding previous analyses. More specifically, it correlates the countries against both German and euro area macroeconomic aggregates and uses more recent techniques in cluster analysis, namely model-based clustering techniques.

Keywords: business cycles; co-movement; optimal currency areas; model-based cluster analysis (search for similar items in EconPapers)
JEL-codes: F15 F31 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2008_003

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