Coherence of Output Gaps in the Euro Area: The Impact of the COVID-19 Shock

Abstract

Using the measures proposed by Mink et al. (2012), we reexamine the coherence of business cycles in the euro area using a long sample period. We also analyze the impact of the COVID-19 pandemic on business cycle coherence and examine whether our measures for business cycle coherence indicate a core versus periphery within EMU. Our results suggest that business cycle coherence did not increase monotonically. The COVID-19 pandemic made that the signs of the output gaps of euro area countries became more similar, but we find large differences in the amplitude of the output gaps across countries.

Keywords: Covid-19 crisis, business cycle coherence, synchronization, output gaps, euro area

JEL Classification: E320, F020, F420