Working Paper: CEPR ID: DP7206
Authors: Michael J. Artis; Christian Dreger; Konstantin Kholodilin
Abstract: We examine real business cycle convergence for 41 euro area regions and 48 US states. Results obtained by a panel model with spatial correlation indicate that the relevance of common business cycle factors is rather stable over the past two decades in the euro area and the US. Ongoing business cycle convergence often detected in cross-country data is not confirmed at the regional level. The degree of synchronization across the euro area is similar to that to be found for the US states. Thus, the lack of convergence does not seem to be an impediment to a common monetary policy.
Keywords: business cycle convergence; spatial correlation; spatial panel model
JEL Codes: C51; E32; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common business cycle factors (E32) | regional economic performance (R11) |
| spatial dependencies among regions (R12) | understanding regional economic fluctuations (R11) |
| common business cycle factors (E32) | synchronization of regional business cycles (F44) |
| lack of convergence at the regional level (R12) | effectiveness of a common monetary policy (E52) |
| common business cycle factors (E32) | regional economic evolution (R11) |