Synchronisation of business cycles in the enlarged European Union [Elektronische Ressource] / vorgelegt von Uwe Böwer

Uwe Boewer

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2007
• Nombre de lectures: 22
• Langue: English
• Poids de l'ouvrage: 3 Mo

Extrait

Synchronisation of Business Cycles
in the Enlarged European Union
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit t
M nchen
2006
vorgelegt von
Uwe B wer
Referent: Professor Frank Westermann, PhD
Korreferent:sor Dr. Jarko Fidrmuc
Promotionsabschlussberatung: 7. Februar 2007Contents
1 Introduction 1
1.1 The political context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.1 A short history of European monetary integration . . . . . . . . . 2
1.1.2 Euro area enlargement . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Literature review and summary of results . . . . . . . . . . . . . . . . . . 3
1.2.1 The initial optimum currency area approach. . . . . . . . . . . . . 4
1.2.2 Endogeneity of optimum currency areas . . . . . . . . . . . . . . . 10
1.2.3 Mundell II: Risk sharing, ?nancial integration and the insurance
mechanism of currency areas . . . . . . . . . . . . . . . . . . . . . 15
2 Common trends and cycles of Central and Eastern Europe and the
euro area 24
2.1 Trend analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.1.1 Catching-up convergence . . . . . . . . . . . . . . . . . . . . . . . 26
2.1.2 Steady-state convergence . . . . . . . . . . . . . . . . . . . . . . . 30
2.2 Cycle analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.2.1 Cycle correlations . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.2.2 Synchronised common cycles . . . . . . . . . . . . . . . . . . . . . 40
2.2.3 Non-synchronised common cycles . . . . . . . . . . . . . . . . . . . 43
2.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3 Determinants of business cycle synchronisation across euro area coun-
1tries 48
3.1 The potential factors behind business cycle synchronisation in the euro area 51
3.1.1 Traditional and new factors . . . . . . . . . . . . . . . . . . . . . . 51
3.1.2 Data and variable speci cation . . . . . . . . . . . . . . . . . . . . 54
3.1.3 Stylised facts of cross-country developments in the euro area . . . 62
3.2 A "robust" estimation approach: The extreme-bounds analysis . . . . . . 76
3.2.1 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.2.2 Results for core explanatory variables . . . . . . . . . . . . . . . . 82
3.2.3 Results for policy indicators . . . . . . . . . . . . . . . . . . . . . . 92
1Most of this chapter was produced in cooperation with Catherine Guillemineau at the European
Central Bank.
I3.2.4 Results for the structural indicators . . . . . . . . . . . . . . . . . 97
3.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
4 Risk sharing, ?nancial integration and Mundell II in the enlarged Eu-
ropean Union 109
4.1 Risk sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4.1.1 Consumption correlation . . . . . . . . . . . . . . . . . . . . . . . . 112
4.1.2 Consumption codependence . . . . . . . . . . . . . . . . . . . . . . 119
4.2 Financial integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
4.2.1 Interest rates and stationarity . . . . . . . . . . . . . . . . . . . . . 128
4.2.2 Interest rate correlation . . . . . . . . . . . . . . . . . . . . . . . . 129
4.2.3 Interest rate codependence . . . . . . . . . . . . . . . . . . . . . . 141
4.3 Summary and conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
5 Conclusion 151
IIList of Figures
2.1 Beta convergence 28
2.2 Industrial production in levels 31
2.3 Industrial production in seasonal di⁄erences 32
3.1 Integration and business cycles 53
3.2 Business cycle components of real GDP 63
3.3 Largest and smallest business cycle correlations 64
3.4 Rolling correlation of business cycles 65
3.5 Largest and smallest bilateral trade ratios 68
3.6 Average trade volume 69
3.7 Smallest and largest trade specialisation indices 70
3.8 Trade specialisation over time 71
3.9 Smallest and largest economic specialisation indices 72
3.10 Economic specialisation over time 73
3.11 Largest and smalles bank ?ow indicators 75
3.12 Bank ?ows over time 75
3.13 Bilateral trade (scaled by total trade) and business cycle correlation 83
3.14 Bilateral trade (scaled by GDP) and business cycle correlation 84
3.15 Trade openness and business cycle correlation 85
3.16 Trade specialisation and business cycle correlation 87
3.17 Economic specialisation and business cycle correlation 90
3.18 Bank ?ows and business cycle correlation 91
3.19 Interest rate di⁄erentials and business cycle correlation 92
3.20 Exchange rate variation and business cycle correlation 93
3.21 Fiscal de cit di⁄erentials and business cycle correlation 95
3.22 Competitiveness di⁄erentials and business cycle correlation 97
3.23 Total stock market index di⁄erence and business cycle correlation 99
3.24 Cyclical services stock market index and business cycle correlation 100
3.25 Trade union density di⁄erentials and business cycle correlation 101
3.26 Employment protection di⁄erentials and business cycle correlation 102
3.27 Geographical distance and business cycle correlation 103
3.28 Relative size and business cycle correlation 104
4.1 Average consumption-GDP correlation gap 116
4.2 Consumption-GDP correlation gap, NMS-8 118
4.3 Consumption-GDP correlation gap, euro area-9 118
4.4 Consumption-GDP correlation gap, EU-5 118
4.5 Rolling interest rate correlations, NMS-8 132
4.6 Rolling interest rate correlations, NMS-8 (di⁄erences) 132
4.7 Bilateral real interest rate di⁄erentials, NMS-8 133
4.8 Variation of bilateral real interest rate di⁄erentials, NMS-8 134
III4.9 Rolling interest rate correlations, euro area core 136
4.10 Rolling interest rate correlations, euro area periphery 136
4.11 Rolling interest rate correlations, non-euro area 136
4.12 Rolling interest rate correlations, euro area core (di⁄erences) 138
4.13 Rolling interest rate correlations, euro area periphery (di⁄erences) 138
4.14 Rolling interest rate correlations, non-euro area (di⁄erences) 138
4.15 Bilateral real interest rate di⁄erentials, EU-15 139
4.16 Variation of bilateral real interest rate di⁄erentials, EU-15 140
4.17 Interest rate dispersion 141
A.1 Business cycle correlation over time 165
A.2 Largest and smallest business cycle correlation, 1980-1988 165
A.3 Largest and smallest business cycle correl 1989-1996 166
A.4 Largest and smallest business cycle correlation, 1997-2004 167
IVList of Tables
2.1 Beta convergence 29
2.2 ADF test results 33
2.3 Seasonal cointegration results 37
2.4 Contemporaneous correlation 39
2.5 Common feature/codependence results 42
3.1 Business cycle correlation and ?scal de cit di⁄erentials 96
3.2 Summary of EBA results 106
4.1 Consumption correlation 113
4.2 GDP correlation 115
4.3 Consumption codependence results, NMS-8 121
4.4 Consumption codependence results, EU-13 122
4.5 GDP codependence results, NMS-8 124
4.6 GDP codependence results, EU-13 125
4.7 Interest rate correlation, NMS-8 130
4.8 Interest rate correl EU-15 135
4.9 Interest rate codependence results, NMS-8 142
4.10 Interest rate codependence results, EU-15, 1980-1989 144
4.11 Interest rate codependence resutls, EU-15, 1990-1998 146
A.1 Description of variables and data sources 164
B.1 EBA results: Bilateral trade (scaled by total trade) 169
B.2 EBA results: Bilateral trade (scaled to GDP) 169
B.3 EBA results: Trade specialisation 170
B.3a EBA results: Trade specion (Fuels) 170
B.3b EBA results: Trade specialisation (Machinery) 171
B.3c EBA results: Trade specion (Manufacturing) 171
B.3d EBA results: Trade specialisation (Chemicals) 172
B.4 EBA results: Economic specialisation 172
B.4a EBA results: E specion (Industry) 173
B.4b EBA results: Economic specialisation (Construction) 173
B.4c EBA results: E specion (Wholesale and retail trade) 174
B.4d EBA results: Economic specialisation (Financial intermediation) 174
B.5 EBA results: Bilateral bank ?ows 175
B.6 EBA results: Real short-term interest rate di⁄erentials 175
B.7 EBA results: Nominal exchange rate volatility 176
B.8a EBA results: Fiscal de?cit di⁄erentials 176
B.8b EBA results: Fiscal de?cit di⁄erentials (including DE-FI dummy) 177
B.9 EBA results: National competitiveness di⁄erentials 177
B.10a EBA results: Stock market di⁄erentials (total market) 178
B.10b EBA results: Stock market di⁄erentials (cyclical services) 178
VB.11 EBA results: Trade union density di⁄erential 179
B.12 EBA results: Geographical distance 179
C.1 Unit root test results, consumption and GDP 180
C.2 Unit root test results, interest rates, NMS 181
C.3 Unit root test results, interest rates, EU-15 181
C.4 Unit root test results, interest rates, NMS 182
C.5 Unit root test results, interest rates, EU-15 182
VIList of Abbreviations
ADF Augmented Dickey-Fuller
AIC Akaike Information Criterion
BIS Bank of International Settlements
BK Baxter-King
BTT Bilateral Trade to Total Trade
BTY Bi Trade to GDP
CD(X) Codependence of Order X
CD-CHEM Cross-Country Sectoral Di⁄erences, Chemicals
CD-CNT Crosstry Sl Di⁄erences, Construction
CD-FIN Cross-Country Sectoral Di⁄erences, F