Business cycle patterns in European regions

Abstract

The aim of this paper is threefold. First, we analyze the comovements of the business cycles of European regions. Second, we date these business cycles, for the first time in the literature, and identify clusters of regions with similar business cycle behavior, using Finite Mixture Markov models. Third, we develop a new index to measure within-country homogeneity. We find that comovement among regions is, on average, quite low, although it increased during the convergence process prior to the euro cash changeover and after the onset of the Great Recession. We identify five different groups of European regions. We also find heterogeneity in the size of border effects. JEL classification: C32, E32, R11

What kind of region reaps the benefits of a currency union?

“…Recent work points in the same direction. For example, Gómez‐Loscos et al (2020, p. 2659) conclude that although synchrony between regional cycles is somewhat limited, there is a “progressive increase in the spatial correlation during the convergence process toward the creation of the euro area.” Gadea‐Rivas et al (2019, p. 229) also report that “since the Maastricht Treaty was signed in 1992, European cohesion again exhibited an upward trend that continued after the introduction of the euro, in 1999, until 2007… This increase may be partially attributed to the process of European unification in institutional and economic terms.”…”

Regional business cycles in emerging economies: a review of the literature

“…Aspects such as co-movements, synchronization and the determinants of BC have been widely analyzed in theoretical studies (Pham et al. , 2020) and empirical ones (Gómez-Loscos et al. , 2020).…”

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“…In this regard, the significant similarities of European regional business cycles are an important criterion for the implementation of such joint European policies. 34,35 The remainder of this study is organized as follows: the next section outlines the variables, methodology, and model specification. Then, empirical results are presented and concluding remarks that include the policy implications of the study are presented finally.…”

“…In this regard, the significant similarities of European regional business cycles are an important criterion for the implementation of such joint European policies. 34,35…”