Iikka Korhonen (BOFIT): Business cycle synchronisation in currency unions: Taking stock of the econometric evidence

Iikka Korhonen (BOFIT): Business cycle synchronisation in currency unions: Taking stock of the econometric evidence

Co-authors: Nauro F. Campos (Brunel University London and ETH Zurich) and Jarko Fidrmuc (ZU Friedrichshafen, CESifo Munich, and KTU Kaunas)

Abstract

This paper offers a systematic evaluation of the evidence on the effects of currency unions on synchronisation of economic activity. Focusing on the euro, we assemble a database with design and estimation characteristics of almost 3000 business cycle synchronisation estimates from 63 studies. Our main findings are that: (1) Synchronisation increased from approximately 0.4 before the euro to 0.6 afterwards. (2) This increase occurred in euro and non-euro countries (but is larger for euro countries). (3) There is evidence of country-specific publication bias. (4) We estimate about half of the observed synchronisation increase is due to the euro.

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