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How Much is the Euro Area Common Cycle Affected by the UK?

Published online by Cambridge University Press:  26 March 2020

Julien Garnier
Julien Garnier*
Affiliation:
French Ministry of Economy and Finance
*
E-mail julien.garnier@eui.eu or julien.garnier@dgtpe.fr
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Abstract

To what extent is the Euro Area common business cycle affected by the inclusion of the UK into this group? To answer this question, a semi-structural model estimated by the Kalman filter, which is robust to outliers and structural breaks, is used. We look at the correlations between business cycles taking potential phase shifts into account. On the one hand, a finding — coherent with existing literature — is that adding the UK to the euro group lowers correlations within the group. On the other hand, the UK cycle is increasingly linked to the Euro Area business cycle and has statistical properties that do not differ substantially from the Euro Area cycles.

Keywords

Common business cyclesoptimal currency areasKalman filterE32F02F42
Type
Articles
Information
National Institute Economic Review , Volume 208: Ten Years of EMU , April 2009 , pp. 109 - 117
Copyright
Copyright © 2009 National Institute of Economic and Social Research

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Footnotes

∗

The views expressed in this paper are those of the author only and do not necessarily reflect the opinions of the DGTPE at the French Ministry of Economy and Finance. This paper was started while I was at the EUI, Florence, and during an internship at the CEPII. I am particularly grateful to Mike Artis, Paolo Zanghieri, Lionel Fontagné and Agnès Bénassy-Quéré for their support and comments. Any error is mine.

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