Economic Sentiment and Aggregate Activity: A Tale of Two European Cycles*

Abstract

Departing from the mainstream literature on European monetary integration, we acknowledge the interdependence of economic sentiment synchronisation and business cycle co‐movements for 17 European countries and the euro area (EA). Building on national accounts and survey data, we find non‐negligible evidence that sentiment cycles are the driving force behind general economic cycle synchronization. We demonstrate that recent EA acquisitions have witnessed an intensification of cycle synchronization with the EA core after the introduction of a common currency, corroborating the beneficial effects of the Eurosystem. Our results show a certain degree of dependence on the business cycle. The synchronization of 17 examined countries vis‐à‐vis the EA is mostly of equal magnitude or even more intensive during recessions than in expansions. In other words, the common monetary policy of the European Central Bank (ECB) should be able to effectively act as a countercyclical tool when an individual economy is facing a recession.

Quantifying the Economic Survive Across the Eu Using Markov Probability Chains

“…A complex meta-analysis (Sorić et al, 2022) interrelates ESI and cyclical developments in 17 EU countries. The authors use national accounts and sample data and conclude that the ESI is the driving force of the general business cycle.…”