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Optimal currency area and business cycle synchronization across U.S. states

Author

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  • Aguiar-Conraria, Luis
  • Brinca, Pedro
  • Gudjonsson, Haukur
  • Soares, Joana

Abstract

We use wavelet analysis to investigate to what extent individual U.S. states' business cycles are synchronized. The results show that the U.S. states are remarkably well synchronized compared to the previous findings w.r.t. the Euro Area. There is also a strong and significant correlation between business cycle dissimilitudes and the distance between each pair of states, consistent to gravity type mechanisms where distance affects trade. Trade, in turn, increases business cycle synchronization. Finally we show that a higher degree of industry specialization is associated with a higher dissimilitude of the state cycle with the aggregate economy.

Suggested Citation

  • Aguiar-Conraria, Luis & Brinca, Pedro & Gudjonsson, Haukur & Soares, Joana, 2015. "Optimal currency area and business cycle synchronization across U.S. states," MPRA Paper 62125, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62125
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    More about this item

    Keywords

    Optimum currency areas; business cycle synchronization; continuous wavelet transform; trade;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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