Nauro Campos, Jarko Fidrmuc, Iikka Korhonen, 26 September 2017

The debate about the future of the Economic and Monetary Union entails a careful examination of the costs and benefits of the European single currency. This column takes stock of the empirical evidence on the euro’s effects on business cycle synchronisation. We find that synchronisation across European countries increased by 50% after 1999 (the year the euro was introduced) and that this increase was more pronounced in euro area countries.

Ansgar Belke, Clemens Domnick, Daniel Gros, 19 January 2017

A high correlation of business cycles is usually seen as a key criterion for an optimum currency area. This column argues that the elasticity with which countries react to the common cycle is equally important. A country with a non-unitary growth elasticity relative to the common area will experience cyclical divergences at the peak and trough of the common cycle. Despite being characterised by highly-correlated business cycles, the Eurozone suffers from widely differing amplitudes. 

Ambrogio Cesa-Bianchi, Jean Imbs, Jumana Saleheen, 08 March 2016

It is well known that financial integration has increased dramatically over the past few decades. This column asks whether this rise has led to greater or less business cycle synchronisation. The answer depends crucially on the source of the shock. In response to common shocks, financial integration tends to lower business cycle synchronisation. In response to a country-specific shock, however, business cycles are more synchronised between countries that are more financially integrated.

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