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Wavelet Analysis of Business Cycle Synchronization in Europe

Nielsen, Glenn LU (2018) NEKN01 20181
Department of Economics
Abstract
Business cycle synchronization is an essential criterion for creating and maintaining an optimal currency area. In this paper, it is investigated whether this required criterion holds for the Euro area at different time horizons (short run, medium run and long run), and if the financial crisis of 2007-2008 influenced the degree of synchronization in Europe. Wavelet analysis on the real GDP growth and unemployment rate is used to investigate business cycle synchronization between the EU-15 countries. The data is decomposed into time and frequency using both the continuous wavelet transform and the discrete wavelet transform, and varimax rotated principal component analysis is used to investigate business cycle synchronization at the... (More)
Business cycle synchronization is an essential criterion for creating and maintaining an optimal currency area. In this paper, it is investigated whether this required criterion holds for the Euro area at different time horizons (short run, medium run and long run), and if the financial crisis of 2007-2008 influenced the degree of synchronization in Europe. Wavelet analysis on the real GDP growth and unemployment rate is used to investigate business cycle synchronization between the EU-15 countries. The data is decomposed into time and frequency using both the continuous wavelet transform and the discrete wavelet transform, and varimax rotated principal component analysis is used to investigate business cycle synchronization at the different time horizons. It is found that there is a high degree of business cycle synchronization in Europe for the different time horizons considered, however the core is more synchronized while some peripheral countries tend to diverge. Furthermore, our results also suggest that there has been an increase in business cycle synchronization after the financial crisis for the core but not for some peripheral countries. (Less)
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author
Nielsen, Glenn LU
supervisor
organization
course
NEKN01 20181
year
type
H1 - Master's Degree (One Year)
subject
keywords
wavelet analysis, business cycle synchronization, principal component analysis, Euro area, optimum currency area
language
English
id
8947529
date added to LUP
2018-07-03 14:23:23
date last changed
2018-07-03 14:23:23
@misc{8947529,
  abstract     = {Business cycle synchronization is an essential criterion for creating and maintaining an optimal currency area. In this paper, it is investigated whether this required criterion holds for the Euro area at different time horizons (short run, medium run and long run), and if the financial crisis of 2007-2008 influenced the degree of synchronization in Europe. Wavelet analysis on the real GDP growth and unemployment rate is used to investigate business cycle synchronization between the EU-15 countries. The data is decomposed into time and frequency using both the continuous wavelet transform and the discrete wavelet transform, and varimax rotated principal component analysis is used to investigate business cycle synchronization at the different time horizons. It is found that there is a high degree of business cycle synchronization in Europe for the different time horizons considered, however the core is more synchronized while some peripheral countries tend to diverge. Furthermore, our results also suggest that there has been an increase in business cycle synchronization after the financial crisis for the core but not for some peripheral countries.},
  author       = {Nielsen, Glenn},
  keyword      = {wavelet analysis,business cycle synchronization,principal component analysis,Euro area,optimum currency area},
  language     = {eng},
  note         = {Student Paper},
  title        = {Wavelet Analysis of Business Cycle Synchronization in Europe},
  year         = {2018},
}