The business cycle in Eurozone economies (1960 to 2009)

Konstantakopoulou, Ioanna and Tsionas, Michael (2011) The business cycle in Eurozone economies (1960 to 2009). Applied Financial Economics, 21 (20). pp. 1495-1513. ISSN 0960-3107

Abstract

This article investigates the business cycles of Eurozone economies. We detect static and dynamic relationships between cyclical components of output, arising through the use of different filtering methods. This is achieved using for the first, correlations, and for the second, the Autoregressive Distributed Lag (ARDL) model proposed by Pesaran et al. (Pesaran–Shin–Smith, PSS, 2001). The evidence indicates that there is a core group of countries, comprising Germany, France, Belgium, the Netherlands and Austria, which are the most synchronized. These countries appear to form a common European cycle after the institutional changes in Europe, while countries such as Greece, Portugal, Luxembourg and Finland present no synchronization with the rest. In addition, the long run estimated coefficients confirm the positive relationships between the business cycles of countries such as Germany with those of the Netherlands, Austria, Belgium, Greece and Ireland. Furthermore, the French cycle with the Dutch, Luxembourgian, Belgian and Spanish cycles; the Belgian cycle with the cycles of all examined countries; the Portuguese cycle with the Greek cycle and finally the Spanish cycle with the Irish cycle. The cycles of most countries converge in the long run equilibrium path, while the speed of convergence is higher in France, Netherlands, Germany and Austria.