Synchronization of Business Cycles in European Union Countries

Abstract

The COVID-19 pandemic has affected economic activity worldwide. Despite the progress made by vaccination campaigns, important uncertainties still linger amid persistent global value chains disruptions and the ongoing energy crisis. A proper understanding of the behavior of the economy is therefore essential for future policy decisions. While there are plenty of studies regarding business cycles, using various methods from univariate filters to more complex methods, less papers focus on large scale comparisons. In this paper, we provide an overview of business cycles in European Union countries. We use the Hodrick-Prescott filter in order to measure the cyclical component of the gross domestic product and the Bry-Boschan-Quarterly algorithm for further analysis, namely the duration and the amplitude of the business cycles. Our results show that their size in European Union countries varies from 2.7 to 6 years and their amplitude is between 1.6 and 5.6 percentage points. We show that in developed economies, business cycles are more stable. Furthermore, strong correlations in terms of business cycles are found in the case of certain groups of countries, such as the Baltic ones or Belgium, Austria and France. In the case of Romania, its business cycle is more similar to the one of Bulgaria, Croatia and Slovenia. These results could provide useful information for policymakers in terms of future policy decisions conditional on both the current state of the economy and its structural characteristics. Under these circumstances, support measures should also take into consideration such properties of the economy.