The Transmission of Business Cycles Implications for EMU Enlargement

24 Pages Posted: 16 Jun 2008

See all articles by Michael J. Artis

Michael J. Artis

University of Manchester - Institute for Political & Economic Governance (IPEG)

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Johann Scharler

University of Linz - Department of Economics

Abstract

We show that countries characterized by large bilateral trade and financial flows tend to have more correlated business cycles. However, we also find that countries with divergent fiscal policies and highly regulated labour markets are subject to idiosyncratic cycles. Applying these results to the new member states of the EU weakens the optimistic view towards the monetary integration of these countries into the euro area, which is frequently found in the literature. Although our results suggest that extensive trade and financial linkages are likely to result in further increases in business cycle correlation, an increase in labour market regulation and the pursuit of national fiscal policies may result in a counteracting effect.

Suggested Citation

Artis, Michael J. and Fidrmuc, Jarko and Scharler, Johann, The Transmission of Business Cycles Implications for EMU Enlargement. Economics of Transition, Vol. 16, Issue 3, pp. 559-582, July 2008, Available at SSRN: https://ssrn.com/abstract=1144904 or http://dx.doi.org/10.1111/j.1468-0351.2008.00325.x

Michael J. Artis

University of Manchester - Institute for Political & Economic Governance (IPEG) ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Jarko Fidrmuc

Zeppelin University Friedrichshafen ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

Johann Scharler

University of Linz - Department of Economics ( email )

Altenbergerstrasse 69
Linz, A-4040
Austria

HOME PAGE: http://www.econ.jku.at/scharler

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