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Business and financial cycles in the Eurozone: synchronization or decoupling

Ahmed, Jameel and Chaudhry, Sajid M and Straetmans, Stefan (2015) Business and financial cycles in the Eurozone: synchronization or decoupling. Discussion Paper. University of Birmingham, Birmingham, UK.

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This paper proposes a novel approach, based on probit framework, towards measuring business cycle synchronization for 9 eurozone economies. We find strong cross-country synchronization in both business cycles and financial cycles. Moreover, financial synchronization dominates business cycle synchronization in the eurozone, especially after the introduction of the single currency. For some peripheral country pairs, we even find some evidence of "de-coupling" business cycles relative to the core countries but the majority of marginal business cycle effects do not change much over time. The former observation supports the often heard plea for more Europe-wide macro-prudential regulation whereas the latter observation gives ammunition to those economists that always stressed that the euro zone architecture is unfinished business and that the conditions for an optimum currency area are not fulfilled.
JEL Classification: C25, E32, F44

Type of Work:Monograph (Discussion Paper)
School/Faculty:Colleges (2008 onwards) > College of Social Sciences
Number of Pages:31
Department:Birmingham Business School
Date:22 December 2015
Series/Collection Name:Birmingham Business School Discussion Paper Series
Subjects:H Social Sciences > H Social Sciences (General)
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Copyright Status:This discussion paper is copyright of the University and the author. In addition, parts of the paper may feature content whose copyright is owned by a third party, but which has been used either by permission or under the Fair Dealing provisions. The intellectual property rights in respect of this work are as defined by the terms of any licence that is attached to the paper. Where no licence is associated with the work, any subsequent use is subject to the terms of The Copyright Designs and Patents Act 1988 (or as modified by any successor legislation). Any reproduction of the whole or part of this paper must be in accordance with the licence or the Act (whichever is applicable) and must be properly acknowledged. For non-commercial research and for private study purposes, copies of the paper may be made/distributed and quotations used with due attribution. Commercial distribution or reproduction in any format is prohibited without the permission of the copyright holders.
Copyright Holders:The Authors and the University of Birmingham
ID Code:2094

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