BUSINESS CYCLE (DE)SYNCHRONIZATION IN THE AFTERMATH OF THE GLOBAL FINANCIAL CRISIS: IMPLICATIONS FOR THE EURO AREA
2015 (English)In: Studies in Nonlinear Dynamics and Econometrics, ISSN 1081-1826, E-ISSN 1558-3708, Vol. 19, no 5, 609-624 p.Article in journal (Refereed) Published
The introduction of Euro currency was a game-changing event intended to induce convergence of Eurozone business cycles on the basis of greater monetary and fiscal integration. The benefit of participating into a common currency area exceeds the cost of losing autonomy in national monetary policy only in case of cycle co-movement. However, synchronization was put back mainly due to country-specific differences and asymmetries in terms of trade and fiscal policies that became profound at the outset of the global financial crisis. As opposed to previous studies that are mostly based on linear correlation or causality modeling, we utilize the cross-wavelet coherence measure to detect and identify the scale-dependent time-varying (de)synchronization effects amongst Eurozone and the broad Euro area business cycles before and after the financial crisis. Our results suggest that the inforcement of an active monetary policy by the ECB during crisis periods could provide an effective stabilization instrument for the entire Euro area. However, as dynamic patterns in the lead-lag relationships of the European economies are revealed, (de)synchronization varies across different frequency bands and time horizons.
Place, publisher, year, edition, pages
De Gruyter , 2015. Vol. 19, no 5, 609-624 p.
Convergence; wavelet coherence; integration; Eurozone
IdentifiersURN: urn:nbn:se:liu:diva-114869DOI: 10.1515/snde-2014-0055ISI: 000366523800004OAI: oai:DiVA.org:liu-114869DiVA: diva2:792840