The convergence of European business cycles 1978-2000

DOI10.1016/S0378-4371(01)00609-4MaRDI QIDQ1597231zbMATH OpenFDO

Authors P. Ormerod, C. Mounfield

Publication date 12 May 2002

Published in Physica A (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/0103533

zbMATH Keywords

growth rate correlationsrandom matrix theory

Mathematics Subject Classification ID

Economic growth models (91B62)

Abstract: The degree of convergence of the business cycles of the economies of the European Union is a key policy issue. In particular, a substantial degree of convergence is needed if the European Central Bank is to be capable of setting a monetary policy which is appropriate to the stage of the cycle of the Euro zone economies. We consider the annual rates of real GDP growth on a quarterly basis in the large core economies of the EU (France, Germany and Italy, plus the Netherlands) over the period 1978Q1 - 2000Q3. An important empirical question is the degree to which the correlations between these growth rates contain true information rather than noise. The technique of random matrix theory is able to answer this question, and has been recently applied successfully in the physics journals to financial markets data. We find that the correlations between the growth rates of the core EU economies contain substantial amounts of true information, and exhibit considerable stability over time. Even in the late 1970s and early 1980s, these economies moved together closely over the course of the business cycle. There was a slight loosening at the time of German re-unification, but the economies are now, if anything, even more closely correlated. In contrast, the results obtained with a data set of the EU core plus the UK show no such trend. In the late 1970s and early 1980s, the UK economy did exhibit some degree of correlation with those of the core EU. However, there is no clear evidence to suggest that the UK business cycle has moved more closely into line with that of the core EU economies over the 1978-2000 period.

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Cited in

(13)

• Inflation and business cycle convergence in the euro area: empirical analysis using an unobserved component model
• Economic fluctuations and fiscal policy in Europe: a political business cycles approach using panel data and clustering (1996--2013)
• Monetary union, trade integration, and business cycles in 19th century Europe
• The UK intranational business cycle
• The homogeneity of two sets of European economies
• The economic-cultural context of the EU economies
• The Impact of Fiscal Policy Convergence on Business Cycle Synchronization between Croatia and Eurozone Countries - Panel Analysis
• The convergence of European business cycles 1980--2004
• Increasing convergence among European stock markets?: A recursive common stochastic trends analysis
• Coupled catastrophes in systems with bidirectional feedback
• Measuring the degree of convergence among European business cycles
• Are European business cycles close enough to be just one?
• Cluster structure of EU-15 countries derived from the correlation matrix analysis of macroeconomic index fluctuations

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