BUSINESS CYCLE SYNCHRONIZATION IN EU: A TIME-VARYING APPROACH
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Authors: Degiannakis, S., Duffy, D. and Filis, G.
Journal: Scottish Journal of Political Economy
This article investigates the time-varying correlation between the EU12-wide business cycle and the initial EU12 member-countries based on Scalar-BEKK and multivariate Riskmetrics model frameworks for the period 1980-2012. The paper provides evidence that changes in the business cycle synchronization correspond to major economic events that have taken place at a European level. In the main, business cycle synchronization until 2007 had moved in a direction positive for the operation of a single currency, suggesting that the common monetary policy was less costly in terms of lost flexibility at the national level. However, as a result of the Great Recession of 2007 and the subsequent Eurozone Crisis, a number of periphery countries, most notably Greece, have experienced desynchronization of their business cycles with the EU12-wide cycle. Nevertheless, for most countries, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to a lack of cyclical synchronization. © 2014 Scottish Economic Society.