Working Paper: CEPR ID: DP7124
Authors: Domenico Giannone; Michele Lenza; Lucrezia Reichlin
Abstract: This paper shows that the EMU has not affected historical characteristics of member countries? business cycles and their cross-correlations. Member countries which had similar levels of GDP per-capita in the seventies have also experienced similar business cycles since then and no significant change associated with the EMU can be detected. For the other countries, volatility has been historically higher and this has not changed in the last ten years. We also find that the aggregate euro area per-capita GDP growth since 1999 has been lower than what could have been predicted on the basis of historical experience and US observed developments. The gap between US and euro area GDP per capita level has been 30% on average since 1970 and there is no sign of catching up or of further widening.
Keywords: euro area; european integration; european monetary union; international business cycles
JEL Codes: C5; E32; E33; F2; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Initial economic conditions (N11) | Subsequent business cycle synchronization (E32) |
| EMU's establishment (F36) | Average per capita GDP growth outcomes (O57) |
| US economic performance (P17) | Euro area growth (O52) |
| Common shocks (E32) | Observed dynamics of euro area growth (O52) |