IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/2007844.html
   My bibliography  Save this paper

Business cycle synchronization and insurance mechanisms in the EU

Author

Listed:
  • Afonso, António
  • Furceri, Davide

Abstract

In this paper we provide a positive exercise on past business-cycle correlations and risk sharing in the European Union, and on the ability of insurance mechanisms and fiscal policies to smooth income fluctuations. The results suggest in particular that while some of the new Member States have well synchronized business cycles, for some of the other countries, business cycles are not yet well synchronized with the euro area's business cycle, and risk-sharing mechanisms may not provide enough insurance against shocks. JEL Classification: E32, E42, F41, F42

Suggested Citation

  • Afonso, António & Furceri, Davide, 2007. "Business cycle synchronization and insurance mechanisms in the EU," Working Paper Series 844, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2007844
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp844.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Angeloni, Ignazio & Dedola, Luca, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 4, European Central Bank.
    3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    4. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 206-259.
    5. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Characterising the Business Cycle for Accession Countries," Working Papers 261, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 409-436.
    7. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    8. Domenico Giannone & Lucrezia Reichlin, 2005. "Trends and cycles in the Euro Area: how much heterogeneity and should we worry about it?," Macroeconomics 0511016, University Library of Munich, Germany.
    9. Andrew K. Rose & T. D. Stanley, 2005. "A Meta‐Analysis of the Effect of Common Currencies on International Trade," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 347-365, July.
    10. Maurel, Mathilde, 2002. "On the Way of EMU Enlargement towards CEECs: What is the Appropriate Exchange Rate Regime?," CEPR Discussion Papers 3409, C.E.P.R. Discussion Papers.
    11. Adriana Arreaza & Bent E. Sgrensen & Oved Yosha, 1999. "Consumption Smoothing through Fiscal Policy in OECD and EU Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 59-80, National Bureau of Economic Research, Inc.
    12. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    13. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    14. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-1089, November.
    15. von Hagen, Jurgen & Hammond, George W, 1998. "Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 331-353, June.
    16. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
    17. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
    18. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    19. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    20. Karras, Georgios, 2002. "Costs and Benefits of Dollarization: Evidence from North, Central, and South America," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 502-516.
    21. repec:zbw:bofitp:2001_008 is not listed on IDEAS
    22. Masson, Paul R & Taylor, Mark P, 1992. "Common Currency Areas and Currency Unions: An Analysis of the Issues," CEPR Discussion Papers 617, C.E.P.R. Discussion Papers.
    23. D. Furceri & G. Karras, 2008. "Business-cycle synchronization in the EMU," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1491-1501.
    24. Alesina, Alberto & Wacziarg, Romain, 1999. "Is Europe going too far?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 1-42, December.
    25. Jarko Fidrmuc, 2004. "The Endogeneity of the Optimum Currency Area Criteria, Intra‐industry Trade, and EMU Enlargement," Contemporary Economic Policy, Western Economic Association International, vol. 22(1), pages 1-12, January.
    26. Fatas, Antonio, 1997. "EMU: Countries or regions? Lessons from the EMS experience," European Economic Review, Elsevier, vol. 41(3-5), pages 743-751, April.
    27. Giancarlo Corsetti & Paolo Pesenti, 2002. "Self-validating optimum currency areas," Staff Reports 152, Federal Reserve Bank of New York.
    28. repec:lic:licosd:10601 is not listed on IDEAS
    29. Tamim Bayoumi & Eswar Prasad, 1997. "Currency Unions, Economic Fluctuations, and Adjustment: Some New Empirical Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 36-58, March.
    30. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilian Dobrescu, 2013. "Restatement of the I-O Coefficient Stability Problem," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 2(1), pages 1-67, December.
    2. Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2013. "International income risk-sharing and the global financial crisis of 2008–2009," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2303-2313.
    3. Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2011. "Income insurance and the determinants of income insurance via foreign asset revenues and foreign liability payments," Economic Modelling, Elsevier, vol. 28(5), pages 2296-2306, September.
    4. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," NBP Working Papers 54, Narodowy Bank Polski.
    5. Afonso, António & Furceri, Davide, 2010. "Government size, composition, volatility and economic growth," European Journal of Political Economy, Elsevier, vol. 26(4), pages 517-532, December.
    6. Jean-Baptiste Gossé & Camille Jehle & Yann Perdereau & Roger Vicquéry, 2022. "European unemployment insurance and macroeconomic stabilisation: are permanent fiscal transfers between States needed? [La stabilisation macroéconomique par une assurance chômage européenne impliqu," Bulletin de la Banque de France, Banque de France, issue 240.
    7. Dinu. Marin & Marinas, Marius Corneliu & Socol Cristian & Socol, Aura Gabriela, 2012. "Clusterization, Persistence, Dependency and Volatility of Business Cycles in an Enlarged Euro Area," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 5-23, June.
    8. Salá Rios, Mercé & Farré Perdiguer, Mariona & Torres Solé, Teresa, 2011. "El ciclo económico de Cataluña. Un análisis de la simetría respecto a España y a la UEM/Catalonia's Business Cycle. An Analysis of the Symmetry in Relation to Spain and the EMU," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 29, pages 913(24á.)-9, Diciembre.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 169-187, March.
    2. António Afonso & Davide Furceri, 2009. "Sectoral Business Cycle Synchronization in the European Union," Economics Bulletin, AccessEcon, vol. 29(4), pages 2996-3014.
    3. Stavros Degiannakis & David Duffy & George Filis, 2014. "Business Cycle Synchronization in EU: A Time-Varying Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(4), pages 348-370, September.
    4. Degiannakis, Stavros & Duffy, David & Filis, George, 2013. "Time-varying Business Cycles Synchronisation in Europe," MPRA Paper 52925, University Library of Munich, Germany.
    5. Karras, Georgios, 2003. "How homogenizing are monetary unions?: Evidence from the U.S. states," The North American Journal of Economics and Finance, Elsevier, vol. 14(3), pages 381-397, December.
    6. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    7. Stefano Schiavo, 2008. "Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas," Economica, London School of Economics and Political Science, vol. 75(297), pages 168-189, February.
    8. Fabrizio Carmignani, 2010. "Endogenous Optimal Currency Areas: the Case of the Central African Economic and Monetary Community," Journal of African Economies, Centre for the Study of African Economies, vol. 19(1), pages 25-51, January.
    9. Crespo-Cuaresma, Jesús & Fernández-Amador, Octavio, 2013. "Business cycle convergence in EMU: A first look at the second moment," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 265-284.
    10. repec:spo:wpmain:info:hdl:2441/9857 is not listed on IDEAS
    11. repec:hal:spmain:info:hdl:2441/9857 is not listed on IDEAS
    12. Davide Furceri & Georgios Karras, 2008. "Is the Middle East an Optimum Currency Area? A Comparison of Costs and Benefits," Open Economies Review, Springer, vol. 19(4), pages 479-491, September.
    13. Dumitru, Ionut, 2009. "Adoptarea euro in Romania [Euro adoption in Romania]," MPRA Paper 18612, University Library of Munich, Germany.
    14. Joao Loureiro & Manuel M.f. Martins & Ana Paula Ribeiro, 2010. "Cape Verde: The Case For Euroisation," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 248-268, September.
    15. Konstantakopoulou, Ioanna & Tsionas, Efthymios G., 2014. "Half a century of empirical evidence of business cycles in OECD countries," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 389-409.
    16. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
    17. repec:hal:wpspec:info:hdl:2441/9857 is not listed on IDEAS
    18. Furceri, Davide & Karras, Georgios, 2006. "Are the new EU members ready for the EURO?: A comparison of costs and benefits," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 25-38, January.
    19. Schor, Armand-Denis, 2000. "La théorie des zones monétaires optimales : l’optimum, le praticable, le crédible et le réel," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 545-576, décembre.
    20. J.M.C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 51-74, September.
    21. Karras, Georgios, 2005. "Is there a yen optimum currency area? Evidence from 18 Asian and Pacific economies," Japan and the World Economy, Elsevier, vol. 17(4), pages 456-469, December.
    22. repec:spo:wpecon:info:hdl:2441/9857 is not listed on IDEAS
    23. Mathy, Gabriel P. & Meissner, Christopher M., 2011. "Business cycle co-movement: Evidence from the Great Depression," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 362-372.
    24. Ansgar Belke & Clemens Domnick & Daniel Gros, 2017. "Business Cycle Synchronization in the EMU: Core vs. Periphery," Open Economies Review, Springer, vol. 28(5), pages 863-892, November.

    More about this item

    Keywords

    business cycle synchronization; EU; Insurance Mechanisms; Optimum Currency Areas;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:2007844. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.