Business Cycle Synchronization and Asymmetry in the European Union

39 Pages Posted: 9 Feb 2022

See all articles by Vladimir Arcabic

Vladimir Arcabic

University of Zagreb - Faculty of Economics & Business

Irina Panovska

University of Texas at Dallas

Josip Tica

University of Zagreb

Date Written: February 3, 2022

Abstract

We analyze business cycle movements and synchronization in the European Union (EU) for all members. We show that both the estimated output gaps and the level of synchronization depend on the statistical measures used by the researcher. To account for this, we employ a large set of output gaps, and we use both a forecasting-based simple average and a Phillips Curve motivated weighted average. Similarly, we measure synchronization using different measures that account for correlations and for the business cycle phase and amplitude. Two sets of robust results emerge. First, our estimated gaps match recession dates well and suggest that many of the countries exhibit a high degree of business cycle nonlinearities. Second, the core Eurozone countries are highly synchronized, but there are large differences in synchronization among non-Eurozone and peripheral Eurozone member states. Synchronization varies over time; it increased substantially before the Global financial crisis and decreased afterwards.

Keywords: business cycle synchronization, output gaps, business cycle asymmetry, Eurozone

JEL Classification: E32, E37, E52, F44, C22

Suggested Citation

Arcabic, Vladimir and Panovska, Irina and Tica, Josip, Business Cycle Synchronization and Asymmetry in the European Union (February 3, 2022). Available at SSRN: https://ssrn.com/abstract=4025508 or http://dx.doi.org/10.2139/ssrn.4025508

Vladimir Arcabic

University of Zagreb - Faculty of Economics & Business ( email )

Trg J. F. Kennedyja 6
Zagreb, 10000
Croatia

Irina Panovska (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Josip Tica

University of Zagreb ( email )

Trg maršala Tita 14
Zagreb
Croatia

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