Business and Financial Cycles in the Eurozone: Synchronization or Decoupling

32 Pages Posted: 13 Apr 2018

See all articles by Jameel Ahmed

Jameel Ahmed

Aligarh Muslim University (AMU)

Sajid M. Chaudhry

Aston University - Aston Business School

Stefan Straetmans

Maastricht University ; University of Antwerp - Faculty of Applied Economics

Date Written: June 2018

Abstract

This paper proposes a novel approach, based on probit framework, toward measuring bilateral synchronization, separately within business cycles and within financial cycles, for 11 eurozone economies. We find strong cross‐country synchronization both within real cycles and within financial cycles. Moreover, financial cycle synchronization dominates business cycle synchronization in the eurozone, especially after the introduction of the single currency. For some peripheral country pairs, we even find some evidence of ‘decoupling’ of business cycles relative to the core countries but majority of marginal business cycle effects do not change much before and after the common currency. The former observation supports the plea for more Europe‐wide macro‐prudential regulation whereas the latter observation gives ammunition to those economists who always stress that the euro zone architecture is an unfinished business and that the conditions for an optimum currency area are not fulfilled.

Suggested Citation

Ahmed, Jameel and Chaudhry, Sajid M. and Straetmans, Stefan, Business and Financial Cycles in the Eurozone: Synchronization or Decoupling (June 2018). The Manchester School, Vol. 86, Issue 3, pp. 358-389, 2018, Available at SSRN: https://ssrn.com/abstract=3160378 or http://dx.doi.org/10.1111/manc.12188

Jameel Ahmed (Contact Author)

Aligarh Muslim University (AMU) ( email )

Chelamala
Perinthalmanna
Aligarh, IN Uttar Pradesh 202002
India

Sajid M. Chaudhry

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

Stefan Straetmans

Maastricht University ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.stefanstraetmans.com

University of Antwerp - Faculty of Applied Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

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