Did the Euro Common Currency Increase or Decrease Business Cycle Synchronization for its Member Countries?

23 Pages Posted: 12 Jun 2018

See all articles by William Miles

William Miles

Wichita State University - Department of Economics

Chu‐Ping C. Vijverberg

CUNY College of Staten Island

Date Written: July 2018

Abstract

We use two variants of Markov switching models to assess changes in output synchronization since the creation of the euro. Out of eight eurozone countries investigated, only one—the Netherlands—has synchronization increased since euro adoption, supporting the ‘endogenous optimal currency area’ argument of Frankel and Rose. However, in three other cases, business cycle synchronization actually fell since the euro's creation. Thus the ‘endogeneity’ of the optimal currency area criteria can go both ways—adopting a common currency may increase synchronization for nations ready for a common currency, but it can lower synchronization for nations that are far from synchronized before monetary unification.

Suggested Citation

Miles, William and Vijverberg, Chu‐Ping C., Did the Euro Common Currency Increase or Decrease Business Cycle Synchronization for its Member Countries? (July 2018). Economica, Vol. 85, Issue 339, pp. 558-580, 2018. Available at SSRN: https://ssrn.com/abstract=3192679 or http://dx.doi.org/10.1111/ecca.12201

William Miles (Contact Author)

Wichita State University - Department of Economics ( email )

Wichita, KS 67260-0078
United States

Chu‐Ping C. Vijverberg

CUNY College of Staten Island

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