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Business cycle (de)synchronization in the aftermath of the global financial crisis: implications for the Euro area

  • Stelios Bekiros EMAIL logo , Duc Khuong Nguyen , Gazi Salah Uddin and Bo Sjö
Published/Copyright: February 3, 2015

Abstract

The introduction of Euro currency was a game-changing event intended to induce convergence of Eurozone business cycles on the basis of greater monetary and fiscal integration. The benefit of participating into a common currency area exceeds the cost of losing autonomy in national monetary policy only in case of cycle co-movement. However, synchronization was put back mainly due to country-specific differences and asymmetries in terms of trade and fiscal policies that became profound at the outset of the global financial crisis. As opposed to previous studies that are mostly based on linear correlation or causality modeling, we utilize the cross-wavelet coherence measure to detect and identify the scale-dependent time-varying (de)synchronization effects amongst Eurozone and the broad Euro area business cycles before and after the financial crisis. Our results suggest that the enforcement of an active monetary policy by the ECB during crisis periods could provide an effective stabilization instrument for the entire Euro area. However, as dynamic patterns in the lead-lag relationships of the European economies are revealed, (de)synchronization varies across different frequency bands and time horizons.

JEL Classification: C22; E32

Corresponding author: Stelios Bekiros, IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France; European University Institute, Department of Economics, Via della Piazzuola 43, I-50133 Florence, Italy; and Athens University of Economics and Business, Department of Finance, 76 Patission str, GR-104 34, Athens, Greece, Tel.: +33 01 53 63 36 00, Fax: +33 01 45 44 40 46, e-mail:

Acknowledgments

The first author is particularly grateful to Ramazan Gençay for valuable comments and discussions. We are also thankful to Yanqin Fan and Ramazan Gençay for kindly providing the code of their wavelet-based unit root test.

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Supplemental Material

The online version of this article (DOI: 10.1515/snde-2014-0055) offers supplementary material, available to authorized users.


Published Online: 2015-2-3
Published in Print: 2015-12-1

©2015 by De Gruyter

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