The "Study on Economic Integration and Business Cycle Synchronization" provides wide-ranging and comparative empirical evidence on the synchronization of business cycles in the euro area following the introduction of the common currency on 1 January 1999.

This new report was commissioned by BEPA as part of the activities in the context of the 10th anniversary of the introduction of the euro. It was prepared by a group of researchers at the Centre for European Economic Research (ZEW), Mannheim, and at the Institute for Advanced Studies (IHS), Vienna.

The study utilizes an extensive set of data from the experience so far with EMU

• to provide empirically-based answers to a series of key questions related to the impact of the introduction of the euro on the synchronization of business cycles in the euro area, and
• to marshal comparative evidence across other common currency regimes and across EU member states which are not members of the euro area.

While the economic literature is not conclusive whether monetary integration enhances synchronization of the business cycles among those forming the monetary union, synchronization among the euro area members was already quite high prior to the introduction of the common currency. But no additional synchronization has occurred during the past decade.

Clusters of member states sharing similar cycles can be identified but differences also exist. The US and euro area business cycles are closely synchronized with the US cycles leading the euro area cycle by approximately two quarters.

The study also examines:

• the role of common and of idiosyncratic shocks and their propagation in the various countries,
• the role of structural reforms in advancing synchronization,
• the significance of country-specific shocks in explaining the divergence in cyclical movements.

Executive summary (68.6 KB)
Full report (1.95 MB)