Determinants of Business Cycle Synchronisation Across Euro Area Countries

73 Pages Posted: 21 Mar 2006

See all articles by Uwe Böwer

Uwe Böwer

European Central Bank (ECB) - Directorate General International and European Relations

Catherine Guillemineau

The Conference Board

Date Written: February 2006

Abstract

We investigate the key factors underlying business cycle synchronisation in the euro area applying the extreme-bounds analysis. We examine both traditional determinants and new, EMU-specific policy and structural indicators over the past 25 years. Our evidence seems to support the endogeneity hypothesis of the optimum currency area criteria. The implementation of the single market intensified bilateral trade across euro area countries and contributed to higher business cycle symmetry. The introduction of the single currency led to an intensification of intra-industry trade which has become the main driving force ensuring the coherence of business cycles. In addition, the set of robust determinants of business cycle synchronisation has varied over time, depending on the difference phases of the European construction, with fiscal policy, in addition to industrial and financial structures, playing a greater role during the completion of the Single Market, while short-term interest rate differentials and cyclical services have become more determinant since Economic and Monetary Union.

Keywords: Business cycle synchronisation, extreme-bounds analysis, Economic and Monetary Union, trade

JEL Classification: C21, E32, F15

Suggested Citation

Böwer, Uwe and Guillemineau, Catherine, Determinants of Business Cycle Synchronisation Across Euro Area Countries (February 2006). ECB Working Paper No. 587, Available at SSRN: https://ssrn.com/abstract=880429 or http://dx.doi.org/10.2139/ssrn.880429

Uwe Böwer (Contact Author)

European Central Bank (ECB) - Directorate General International and European Relations ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Catherine Guillemineau

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
436
Abstract Views
2,204
rank
93,292
PlumX Metrics