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Business Cycle Co-Movement in Europe: Trade, Industry Composition and the Single Currency

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  • Nestor Azcona

    (Providence College)

Abstract

This paper studies the reasons why business cycles are more synchronized between some European economies than between others. It analyzes the cyclical co-movement of real GDP for 325 European country-pairs over the 1995–2018 period and finds that differences in industry composition can explain disparities in business cycle synchronization better than trade or financial linkages. The role of trade is studied by considering both bilateral trade intensity and common trade relationships with third countries. Bilateral financial integration is found to have a negative effect on GDP correlations, while sharing the euro has a positive but relatively small effect. However, the euro amplifies the negative effect of industry specialization on co-movement. The results also show that using more disaggregated sectorial data substantially increases the importance of differences in industry composition.

Suggested Citation

  • Nestor Azcona, 2022. "Business Cycle Co-Movement in Europe: Trade, Industry Composition and the Single Currency," Open Economies Review, Springer, vol. 33(1), pages 121-139, February.
    • Handle: RePEc:kap:openec:v:33:y:2022:i:1:d:10.1007_s11079-021-09625-7
    DOI: 10.1007/s11079-021-09625-7
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    Cited by:

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    More about this item

    Keywords

    Business cycle co-movement; Euro; Industry composition; Specialization; Trade;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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