14 Nov 2016

Business Cycle Synchronization in the EMU: Core vs. Periphery

Ansgar Belke / Clemens Domnick / Daniel Gros

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This paper examines business cycle synchronization in the European Monetary Union with a special focus on the core-periphery pattern in the aftermath of the crisis.  Using  a  quarterly index for business cycle synchronization by Cerqueira (2013), our panel data estimates suggest that it is countries belonging to the core that  are faced with  increased  synchronization among themselves  after 2007Q4, whereas peripheral countries decreased synchronization with regards to the core, non-EMU countries and among themselves.  Correlation coefficients and nonparametric local polynomial regressions corroborate these findings. The usual focus on co-movements and correlations might be misleading, however, since we also find large differences in the amplitude of national cycles. A strong common cycle can thus lead to large differences in cyclical positions even if national cycles are strongly correlated.

Ansgar Belke is Professor in the Department of Economics at the University of Duisburg-Essen and IZA Bonn. Clemens Domnick is Chair for Macroeconomics at the University of Duisburg-Essen and Daniel Gros is Director of CEPS.

Series: CEPS Working Documents   No of pp: 46 pp