Do Institutional Changes Affect Business Cycles? Evidence from Europe

Abstract

We study the e¤ects that the Maastricht treaty, the creation of the ECB, and the Euro changeover had on the dynamics of European business cycles using a panel VAR and data from ten European countries -seven from the Euro area and three outside of it. There are changes in the features of European business cycles and in the transmission of shocks. They precede the three events of interest and are more linked to a general process of European convergence and synchronization.JEL classi…cation: C15, C33, E32, E42

One money, one cycle? The EMU experience

“…22 Interestingly, the size of the coefficient estimate of the ERM dummy is nearly equal to the one of the EMU dummy reflecting a possible impact on business cycle synchronization already prior to euro area accession due to corresponding expectations. This finding is in line with Canova et al (2012) who study the impact of recent institutional changes on national and European fluctuations and fail to estimate significant cut-off points around the creation date of the single currency. One might argue that the effect captured by the EMU variable arises due to the increased degree of financial integration.…”

Has the Euro changed business cycle synchronization? Evidence from the core and the periphery

“…The evidence rather suggests that worldwide phenomenons such as increased trade and liberalization of capital markets are the source of increased business cycle synchronization from the rst to the second period. 13 The results allow some further interpretation of the developments within the peripheral countries: Although there is an apparent 13 This is in line with the evidence reported by Canova et al (2009). They nd a general process of European convergence which, however, cannot be linked to the introduction of the Euro.…”

Trade Intensity and Output Synchronisation: On the Endogeneity Properties of EMU

“…The stylised facts discussed above corroborate the view of the lack of an "euro" effect reducing asymmetries in business cycle developments within EMU (Enders et al, 2010;Canova et al, 2009;Del Negro and Otrok, 2008;Giannone et al, 2009). Interestingly, our evidence indicates that, despite the increase in trade intensity after the launch of the euro, diverging patterns in real activity and heterogenous behaviour in trade flows can be detected.…”