Output Gap Similarities in Europe: Detecting Country Groups

CEGE Discussion paper no. 305, February 2017

23 Pages Posted: 16 Feb 2017

See all articles by Markus Ahlborn

Markus Ahlborn

Georg-August Universität Göttingen

Marcus Wortmann

University of Goettingen (Göttingen)

Date Written: February 16, 2017

Abstract

The literature on business cycle synchronization in Europe frequently presumes an alleged ‘core‒periphery’ pattern without providing empirical verification of the underlying cyclical (dis)similarities or the supposed but unobservable ‘European business cycle(s)’. To provide a data-based country group analysis, we apply a fuzzy clustering approach to quarterly output gap series of 27 European countries over the period 1996‒2015. Our results confirm the existence of a persistent core cluster as opposed to clusters on the Eastern and Southern European peripheries, highlighting the inadequate composition of the euro area (EA). Moreover, we find that Germany’s business cycle is not a suitable substitute for the core. By analyzing the relation between the identified ‘European core business cycle’ and the peripheral cycles over time, we show diverging patterns for the southern periphery after the financial crisis, casting doubt on the endogeneity properties of the EA.

Keywords: business cycles, core‒periphery, euro area, fuzzy cluster analysis.

JEL Classification: C38, E32, F15, F45

Suggested Citation

Ahlborn, Markus and Wortmann, Marcus, Output Gap Similarities in Europe: Detecting Country Groups (February 16, 2017). CEGE Discussion paper no. 305, February 2017, Available at SSRN: https://ssrn.com/abstract=2918902 or http://dx.doi.org/10.2139/ssrn.2918902

Markus Ahlborn (Contact Author)

Georg-August Universität Göttingen ( email )

Platz der Göttinger Sieben 5
Goettingen, 37073
Germany

Marcus Wortmann

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
75
Abstract Views
572
Rank
569,600
PlumX Metrics