Working Paper: CEPR ID: DP4824
Authors: Maximo Camacho; Gabriel Pérez-Quirós; Lorena Saiz
Abstract: We propose a comprehensive methodology to characterize the business cycle comovements across European economies and some industrialized countries, always trying to ?let the data speak?. Out of this framework, we propose a novel method to show that there is no ?Euro economy? that acts as an attractor to the other economies of the area. We show that the relative comovements across EU economies are prior to the establishment of the Monetary Union. We are able to explain an important proportion of the distances across their business cycles using macro-variables related to the structure of the economy, to the directions of trade, and to the size of the public sector. Finally, we show that the distances across countries that belong to the European Union are smaller than the distances across newcomers.
Keywords: business cycle synchronization; cluster analysis; economic integration; european union enlargement; multidimensional scaling
JEL Codes: C22; E32; F02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| No single euro economy (F36) | attractor for other economies (F69) |
| Historical connections (N63) | current economic behaviors (F69) |
| Macroeconomic variables related to trade, public sector size, and economic structure (F41) | distances across economies (R12) |
| More closely linked countries (F36) | greater synchronization in their business cycles (F44) |
| Trade linkages (F19) | business cycle synchronization (F44) |