Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-15T09:41:33.775Z Has data issue: false hasContentIssue false
  • English
  • Français

Have UK and Eurozone Business Cycles Become More Correlated?

Published online by Cambridge University Press:  26 March 2020

Michael Massmann  and
James Mitchell
Michael Massmann*
Affiliation:
National Institute of Economic and Social Research and Lincoln College, Oxford
James Mitchell*
Affiliation:
National Institute of Economic and Social Research
*
e-mail: m.massmann@niesr.ac.uk
e-mail: j.mitchell@niesr.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

Recent estimates suggest that the UK business cycle is closer to the Eurozone business cycle than it was in the early 1990s. This paper investigates whether this phenomenon has been accompanied by increased correlation between UK and Eurozone business cycles. Considering a range of alternative measures of the business cycle we find, using 40 years of monthly industrial production data, no clear evidence for a sustained increase in correlation between UK and Eurozone business cycles. Instead, in the 1990s, the correlation between UK and Eurozone business cycles has been volatile relative to historical levels. It is only recently, i.e. since 1997, that the UK has become more correlated with the Eurozone, although the level of correlation is lower than against non-Eurozone countries. Importantly, the strength of these relationships is sensitive to how the business cycle is measured. Care should therefore be exercised when using business cycles estimates to test the relationship between UK and Eurozone business cycles.

Type
Articles
Information
National Institute Economic Review , Volume 182 , October 2002 , pp. 58 - 71
Copyright
Copyright © 2002 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Agresti, A.-M. and Mojon, B. (2001), ‘Some stylised facts on the Euro area business cycle’, ECB Working Paper No. 95.Google Scholar
Arino, M.A. and Newbold, P. (1998), ‘Computation of the Beveridge-Nelson decomposition for multivariate economic time series’, Economics Letters, 61, 1, pp. 37–42.CrossRefGoogle Scholar
Artis, M. (1999), ‘Should the UK join EMU?’, National Institute Economic Review, 171, pp. 70–81.CrossRefGoogle Scholar
Artis, M. and Zhang, W. (1997), ‘International business cycle and the ERM: is there a European business cycle?’, International Journal of Finance and Economics, 2, pp. 1–16.3.0.CO;2-7>CrossRefGoogle Scholar
Artis, M. and Zhang, W. (1999), ‘Further evidence on the international business cycle and the ERM: is there a European business cycle?’, Oxford Economic Papers, 51, pp. 120–132.CrossRefGoogle Scholar
Backhouse, R. and Salanti, A. (2000), Macroeconomics and the Real World, Oxford, Oxford University Press.Google Scholar
Barrell, R. (2002), ‘The UK and EMU: choosing the regime’, National Institute Economic Review, 180, pp. 54–71.CrossRefGoogle Scholar
Baxter, M. and King, R.G. (1999), ‘Measuring business cycles: approximate band-pass filters for economic time series’, Review of Economics and Statistics, 81, 4, pp. 575–593.CrossRefGoogle Scholar
Beveridge, S. and Nelson, C.R. (1981), ‘A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the ‘business cycle”, Journal of Monetary Economics, 7, 2, pp. 151–174.CrossRefGoogle Scholar
Bry, G. and Boschan, C. (1971), ‘Interpretation and analysis of time-series scatters’, The American Statistician, 25, 2, pp. 29–33.Google Scholar
Burns, A.F. and Mitchell, W.C. (1946), Measuring Business Cycles, New York, NBER.Google Scholar
Canova, F. (1994), ‘Detrending and turning points’, European Economic Review, 38, 3-4, pp. 614–623.CrossRefGoogle Scholar
Canova, F. (1998a), ‘Detrending and business cycle facts’, Journal of Monetary Economics, 41, 3, pp. 475–512.CrossRefGoogle Scholar
Canova, F. (1998b), ‘Detrending and business cycle facts: a user's guide’, Journal of Monetary Economics, 41, 3, pp. 533–540.CrossRefGoogle Scholar
Canova, F. (1999), ‘Does detrending matter for the determination of the reference cycle and the selection of turning points?’, Economic Journal, 109, 452, pp. 126–150.CrossRefGoogle Scholar
Christodoulakis, N., Dimelis, S.P. and Kollintzas, T. (1995), ‘Comparison of business cycles in the EC: idiosyncracies and regularities’, Economica, 62, pp. 1–27.CrossRefGoogle Scholar
De Haan, J. and Inklaar, R. (2001), ‘Is there really a European business cycle? A comment’, Oxford Economic Papers, 53, pp. 215–220.Google Scholar
Doornik, J.A. (1999), Object-Oriented Matrix Programming Using Ox, 3rd edn, London, Timberlake Consultants Press.Google Scholar
Findley, D.F., Monsell, B.C., Bell, W.R., Otto, M.C. and Chen, B.-C. (1998), ‘New capabilities and methods of the X-12-ARIMA seasonal adjustment program’, Journal of Business and Economic Statistics, 16, pp. 127–152.Google Scholar
Gomez, V. and Maravall, A. (1998), ‘Tramo-Seats’, mimeo, Banca de Espana.Google Scholar
HM Treasury (1997), ‘UK membership of the single currency: an assessment of the five economic tests’, October. PDF available at http://www.hm-Treasury.gov.uk/documents/the_euro/euro_index_index.cfm.Google Scholar
Harding, D. and Pagan, A, (2002), ‘Dissecting the cycle: a methodological investigation’, Journal of Monetary Economics, 49, pp. 365–381.CrossRefGoogle Scholar
Harvey, A.C. (1993), Time Series Models, 2nd edn, Harvester-Wheatsheaf.Google Scholar
Harvey, A.C. and Jaeger, A. (1993), ‘Detrending, stylized facts and the business cycle’, Journal of Applied Econometrics, 8, pp. 231–247.CrossRefGoogle Scholar
Koopman, S.J., Harvey, A.C., Doornik, J.A. and Shephard, N. (1999), Stamp 6.0, Timberlake Consultants.Google Scholar
Massmann, M. and Mitchell, J. (2002), ‘Re-considering the evidence: are European business cycles converging?’, mimeo, National Institute of Economic and Social Research.Google Scholar
Newbold, P. (1990), ‘Precise and efficient computation of the Beveridge-Nelson decomposition of economic time series’, Journal of Monetary Economics, 26, 3, pp. 453–457.CrossRefGoogle Scholar
Osborn, D.R., (1995), ‘Moving average detrending and the analysis of business cycles’, Oxford Bulletin of Economics and Statistics, 57, pp. 547–558.CrossRefGoogle Scholar
Pedersen, T.M., (2001), ‘The Hodrick-Prescott filter, the Slutzky effect and the distortionary effect of filters’, Journal of Economic Dynamics and Control, 25, pp. 1081–1101.CrossRefGoogle Scholar
Ravn, M.O. and Uhlig, H. (2002), ‘On adjusting the Hodrick-Prescott filters for the frequency of observations’, Review of Economics and Statistics, 84, pp. 371–380.CrossRefGoogle Scholar
Zarnowitz, V. and Ozyildirim, A. (2002), ‘Time series decomposition and measurement of business cycles, trends and growth cycles’, NBER Working Paper 8736.CrossRefGoogle Scholar