Decomposing the Co-Movement of the Business Cycle: A Time-Frequency Analysis of Growth Cycles in the Euro Area

Bank of Finland Research Discussion Paper No. 12/2005

72 Pages Posted: 29 Dec 2005  

Patrick M. Crowley

Texas A&M University - Corpus Christi; Bank of Finland/Suomen Pankki

Jim Lee

Texas A&M University - Department of Finance, Economics, & Decision Sciences

Date Written: December 2005

Abstract

This article analyses the frequency components of European business cycles using real GDP by employing multiresolution decomposition (MRD) with the use of maximal overlap discrete wavelet transforms (MODWT). Static wavelet variance and correlation analysis is performed, and phasing is studied using co-correlation with the euro area by scale. Lastly dynamic conditional correlation GARCH models are used to obtain dynamic correlation estimates by scale against the EU to evaluate synchronicity of cycles through time. The general findings are that euro area members fall into one of three categories: i) high and dynamic correlations at all frequency cycles (e.g. France, Belgium, Germany), ii) low static and dynamic correlations, with little sign of convergence occurring (e.g. Greece), and iii) low static correlation but convergent dynamic correlations (e.g. Finland and Ireland).

Keywords: business cycles, growth cycles, European Union, multiresolution

JEL Classification: C65, E32, O52

Suggested Citation

Crowley, Patrick M. and Lee, Jim, Decomposing the Co-Movement of the Business Cycle: A Time-Frequency Analysis of Growth Cycles in the Euro Area (December 2005). Bank of Finland Research Discussion Paper No. 12/2005. Available at SSRN: https://ssrn.com/abstract=872705 or http://dx.doi.org/10.2139/ssrn.872705

Patrick M. Crowley (Contact Author)

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive, Unit #5808
Corpus Christi, TX 78412
United States

HOME PAGE: http://patrickmcrowley.com

Bank of Finland/Suomen Pankki ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Jim Lee

Texas A&M University - Department of Finance, Economics, & Decision Sciences ( email )

6300 Ocean Drive, Unit #5808
Corpus Christi, TX 78412
United States

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