Business Cycle Synchronisation in a Currency Union: Taking Stock of the Evidence

62 Pages Posted: 20 Sep 2017 Last revised: 3 Dec 2017

See all articles by Nauro F. Campos

Nauro F. Campos

Brunel University London - Economics and Finance; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute; IZA Institute of Labor Economics

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Iikka Korhonen

Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: September 20, 2017

Abstract

This paper offers a first systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3,000 business cycle synchronisation coefficients as well as their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); (3) there is evidence of country-specific publication bias; (4) our difference-in-differences estimates suggest the euro accounted for approximately half of the observed increase in synchronisation.

Keywords: business cycles synchronisation, optimum currency areas, EMU, euro, meta-analysis

JEL Classification: E32, F42

Suggested Citation

Campos, Nauro F. and Fidrmuc, Jarko and Korhonen, Iikka, Business Cycle Synchronisation in a Currency Union: Taking Stock of the Evidence (September 20, 2017). Bank of Finland Research Discussion Paper No. 28/2017. Available at SSRN: https://ssrn.com/abstract=3039993

Nauro F. Campos (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jarko Fidrmuc

Zeppelin University Friedrichshafen ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

Iikka Korhonen

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

P.O.Box 160
Helsinki 00101
Finland

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