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What drives business cycle synchronization? BMA results from the European Union

Author

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  • Krzysztof Beck

    (Department of Econometrics, Lazarski University, Warsaw, Poland)

Abstract

The last twenty years have brought a bulk of inconsistent results on the determinants of business cycle synchronization (BCS). Researchers have usually focused their attention on a limited set of possible determinants, not accounting for model uncertainty. For these reasons, Bayesian Model Averaging has been applied in this paper to the dataset with 43 potential determinants of BCS for the EU. There is strong evidence to claim that migration, exchange rate variability, similarity of production structures, TFP shocks, similarity in exchange rate policy, intra-industry trade, risk sharing, and capital mobility are robust determinants of BCS. Some well-established determinants such as bilateral trade, monetary policy similarity, gravity variables, and participation in a monetary union and free trade area have turned out to be fragile. The structure of trade is more important for BCS than its magnitude, as intra-industry trade and structural similarity are taking explanatory power away from the bilateral trade.

Suggested Citation

  • Krzysztof Beck, 2019. "What drives business cycle synchronization? BMA results from the European Union," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(2), pages 248-275.
    • Handle: RePEc:bic:journl:v:19:y:2019:i:2:p:248-275
    DOI: 10.1080/1406099X.2019.1652393
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    Citations

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    Cited by:

    1. Benoit Dicharry & Lubica Stiblarova, 2023. "Positive externalities of the EU cohesion policy: Toward more synchronised CEE countries?," International Economics and Economic Policy, Springer, vol. 20(3), pages 485-508, July.
    2. Beck, Krzysztof & Yersh, Valeryia, 2024. "Economic integration and consumption risk sharing: A comparison of Eurozone and OECD countries," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 784-803.
    3. Sodiq Olaiwola Jimoh & Soo Y. Chua, 2024. "Business Cycle Synchronisation and Regional Migration: Testing the OCA Criteria in the West African Region," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 67(1), pages 97-108, March.

    More about this item

    Keywords

    Business cycle synchronization; Bayesian model averaging; jointness measures; the European Union; optimum currency areas; monetary union;
    All these keywords.

    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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