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Business Cycle Synchronization between Euro Area and Central and Eastern European Countries


  • We would like to thank M. Ayhan Kose, Christopher Otrok and Charles H. Whiteman for graciously sharing, via Otrok's website, their GAUSS codes. The opinions expressed in this paper do not necessarily reflect the official position of the OECD, its member states or that of any other institutions the authors are affiliated with.

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We analyze the degree of co-movements in real macroeconomic aggregates across selected euro area and Central and Eastern European (CEE) countries applying a multi-factor model. Our results suggest that the evolution of the global European factor matches well the narrative of main economic events between 1995 and 2011, capturing among others the recession during the recent global financial and economic crisis. This factor plays a central role in explaining real output growth variability in euro area and is negligible in CEE countries. Furthermore, using Markov switching models and concordance indices, we shed light on an increase in business cycle synchronization, with the degree of concordance between country-specific and European business cycles being high.

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