Business cycle synchronization and the Euro: A wavelet analysis

► We propose a metric to measure and test for business cycles synchronization. ► France and Germany are the most synchronized countries with the rest of Europe. ► Portugal, Greece, Ireland and Finland are not synchronized with the rest of Europe. ► The French leads the German business cycle as well...

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Bibliographic Details
Published in:Journal of macroeconomics 2011-09, Vol.33 (3), p.477-489
Main Authors: Aguiar-Conraria, Luı´s, Joana Soares, Maria
Format: Article
Language:English
Subjects:
Business cycle synchronization
Business cycle synchronization European Union integration Continuous wavelet transform Wavelet distance matrix Multidimensional scaling
Business cycles
Comparative analysis
Continuous wavelet transform
Cross-national analysis
Cyclical analysis
Economic models
Europe
European integration
European Union integration
Measurement
Multidimensional scales
Multidimensional scaling
Statistical methods
Studies
Wavelet distance matrix
Wavelet transforms
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Summary:► We propose a metric to measure and test for business cycles synchronization. ► France and Germany are the most synchronized countries with the rest of Europe. ► Portugal, Greece, Ireland and Finland are not synchronized with the rest of Europe. ► The French leads the German business cycle as well as the rest of Europe. ► The Czech Republic seems a promising candidate to join the Euro in the future. We use wavelet analysis to study business cycle synchronization across the EU-15 and the Euro-12 countries. Based on the wavelet transform, we propose a metric to measure and test for business cycles synchronization. Several conclusions emerge. France and Germany form the core of the Euro land, being the most synchronized countries with the rest of Europe. Portugal, Greece, Ireland and Finland do not show statistically relevant degrees of synchronization with Europe. We also show that some countries (like Spain) have a French accent, while others have a German accent (e.g., Austria). Perhaps surprisingly, we find that the French business cycle has been leading the German business cycle as well as the rest of Europe. Among the countries that may, in the future, join the Euro, the Czech Republic seems the most promising candidate.
ISSN:0164-0704
1873-152X
DOI:10.1016/j.jmacro.2011.02.005