Currency Union, Free-Trade Areas, and Business Cycle Synchronization

40 Pages Posted: 11 Oct 2008 Last revised: 25 Apr 2011

See all articles by Pierangelo De Pace

Pierangelo De Pace

Pomona College - Department of Economics

Date Written: March 23, 2011

Abstract

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we find some statistically significant evidence of higher correlations following the creation of the EMU in 1999 for several subgroups of countries. We detect significantly more pronounced correlations between Mexico and the US and between Mexico and Canada in North America after the enforcement of the NAFTA in 1994. Results are derived from an econometric framework based on nonparametric iterated stationary bootstrap methods, whose statistical reliability and performance we assess through Monte Carlo simulations.

Keywords: Cycle Synchronization, Hypothesis Testing, Bootstrap Methods

JEL Classification: C12, C13, C14, C15, C32, E32, F15

Suggested Citation

De Pace, Pierangelo, Currency Union, Free-Trade Areas, and Business Cycle Synchronization (March 23, 2011). Available at SSRN: https://ssrn.com/abstract=1281763 or http://dx.doi.org/10.2139/ssrn.1281763

Pierangelo De Pace (Contact Author)

Pomona College - Department of Economics ( email )

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