Did the Euro common currency Increase or decrease business cycle synchronization for its member countries?

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Authors
Miles, William
Vijverberg, Chi-Ping C.
Issue Date
2016-03-23
Type
Article
Language
en_US
Keywords
Euro synchronization , Eurozone countries , Markov models , Research Subject Categories::SOCIAL SCIENCES::Business and economics::Economics
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Abstract

We use two variants of Markov switching models to assess changes in output synchronization since the creation of the euro. Out of eight eurozone countries investigated, only one—the Netherlands—has synchronization increased since euro adoption, supporting the ‘endogenous optimal currency area’ argument of Frankel and Rose. However, in three other cases, business cycle synchronization actually fell since the euro's creation. Thus the ‘endogeneity’ of the optimal currency area criteria can go both ways—adopting a common currency may increase synchronization for nations ready for a common currency, but it can lower synchronization for nations that are far from synchronized before monetary unification.

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Post-print of this article will be available on SOAR in June 2018 after two year embargo.
Citation
Miles, W. and Vijverberg, C.-P. C. (2016), Did the Euro Common Currency Increase or Decrease Business Cycle Synchronization for its Member Countries?. Economica. doi:10.1111/ecca.12201
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Wiley
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ISSN
1468-0335
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