MEASURING THE INTERMITTENT SYNCHRONICITY OF MACROECONOMIC GROWTH IN EUROPE

Abstract

Synchronization of growth rates are an important feature of international business cycles, particularly in relation to regional integration projects such as the single currency in Europe. Synchronization of growth rates clearly enhances the effectiveness of European Central Bank monetary policy, ensuring that policy changes are attuned to the dynamics of growth and business cycles in the majority of member states. In this paper, a dissimilarity metric is constructed by measuring the topological differences between the GDP growth patterns in recurrence plots for individual countries. The results show that synchronization of growth rates were higher among the euro area member states during the second half of the 1980s and from 1997 to roughly 2002. Apart from these two time periods, euro area member states do not appear to be more synchronized than a group of major international countries, suggesting that apart from specific times when European integration initiatives were being implemented, globalization was likely the dominant factor behind international business cycle synchronization.