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Business Cycle Synchronisation in the Enlarged EU: Co-Movements in the New and Old Members. CEPS Working Documents No. 200, 1 March 2004

Darvas, Zsolt and Szapáry, György. (2004) Business Cycle Synchronisation in the Enlarged EU: Co-Movements in the New and Old Members. CEPS Working Documents No. 200, 1 March 2004. [Working Paper]

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    Abstract

    It is generally recognised that countries wanting to join a monetary union should display the optimal currency area properties. One such property is the similarity of business cycles. We therefore undertook to analyse the synchronisation of business cycles between the EMU-12 and the eight new EU members from Central and Eastern Europe (CEECs), for which the next step to be considered in the integration process is entry into the EMU. In contrast to the usually analysed GDP and industrial production data, we extend our analysis to the major expenditure and sectoral components of GDP and use several measures of synchronisation. The main findings of the paper are that Hungary, Poland and Slovenia have achieved a high degree of synchronisation with EMU for GDP, industrial production and exports, but not for consumption and services. The other CEECs have achieved less or no synchronisation. There has been a significant increase in the synchronisation of GDP and also its major components in the EMU members since the start of the run-up to EMU. While this lends support for the existence of OCA endogeneity, it cannot be unambiguously attributed to it because there is also evidence of a world business cycle. Another finding is that the consumption-correlation puzzle remains, but its magnitude has greatly diminished in the EMU members, which is good news for common monetary policy.

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    Item Type: Working Paper
    Uncontrolled Keywords: Business cycle synchronisation; consumption-correlation puzzle; OCA endogeneity.
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > EMU/EMS/euro
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 23 Feb 2008
    Page Range: p. 60
    Last Modified: 15 Feb 2011 17:43
    URI: http://aei.pitt.edu/id/eprint/6632

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