1468-0351/asset/ECOT_left.gif?v=1&s=c8fc7379202380c362773c802573be1bc7e7d468)
1468-0351/asset/ECOT_right.gif?v=1&s=5ee8f769a19e8bffb80757b077236c74d42fc1c2)
The transmission of business cycles Implications for EMU enlargement†
Article first published online: 28 JUN 2008
DOI: 10.1111/j.1468-0351.2008.00325.x
© 2008 The Authors. Journal compilation © 2008 The European Bank for Reconstruction and Development
Additional Information
How to Cite
Artis, M. J., Fidrmuc, J. and Scharler, J. (2008), The transmission of business cycles Implications for EMU enlargement. Economics of Transition, 16: 559–582. doi: 10.1111/j.1468-0351.2008.00325.x
Publication History
- Issue published online: 28 JUN 2008
- Article first published online: 28 JUN 2008
- Received: November 6, 2006; Acceptance: November 14, 2007
- Abstract
- Article
- References
- Cited By
Keywords:
- E32;
- F15;
- J50
- optimum currency area theory;
- trade;
- foreign direct investment;
- deviation business cycle;
- labour market rigidities
Abstract
We show that countries characterized by large bilateral trade and financial flows tend to have more correlated business cycles. However, we also find that countries with divergent fiscal policies and highly regulated labour markets are subject to idiosyncratic cycles. Applying these results to the new member states of the EU weakens the optimistic view towards the monetary integration of these countries into the euro area, which is frequently found in the literature. Although our results suggest that extensive trade and financial linkages are likely to result in further increases in business cycle correlation, an increase in labour market regulation and the pursuit of national fiscal policies may result in a counteracting effect.