Are the Eurozone Financial and Business Cycles Convergent Across Time and Frequency?

This paper examines the Eurozone (EZ) convergence through Financial and Business cycles frequencies over time. Specifically, I use the Maximum Overlap Discrete Wavelet Transform (MODWT) in order to analyze whether financial cycles on the one hand and business cycles on the other hand are inter-countries synchronized, interconnected, interrelated and co-variant across time and frequencies. I also study if Financial and Business cycles are intra-countries synchronized, interconnected, interrelated, co-variant and phased across time and frequencies. I find that: (i) the EZ is mostly divergent at short term; (ii) the monetary policy led to a boom period between 2002 and 2006 that masked the already existing divergences in the EZ; (iii) that business and financial cycles grew in a case-by-case macroeconomic and financial environment which led to an exacerbation of the divergences; (iv) the lack of synchronization at all frequencies and over time intra-country and inter-country precludes the monetary policy to play its countercyclical role.