Convergence of Business Cycles in the Euro Area: Evidence from Survey Data

Many empirical studies have dealt with the subject of European convergence. These studies have reached controversial conclusions as to the relation between business cycle synchronisation and increased monetary integration in Europe. One reason behind these differences relates to the necessity to identify the business cycle from trending statistical data. In this paper we argue that indicators based on business and consumer surveys (BCS) can act as a substitute for quantitative data such as GDP and IP. An important practical advantage of using survey-based indicators is that they do not require the prior identification and estimation of the cyclical component as the indicators are not subject to a long-term trend. The analysis in this paper uses the European Commission’s Industrial Confidence Indicator (ICI) to analyse cyclical convergence/divergence in the euro area. The empirical results suggest that there is a marked correspondence between results derived from the more traditional hard statistical data and those based on qualitative BCS data. The correlations between industrial confidence indicators provide evidence of a recent decrease in euro-area business cycle synchronisation starting around 2002. These findings do not support the hypothesis that the adoption of the euro has fostered cyclical convergence.