Business Cycles in the Euro Area

Abstract

This chapter investigates changes induced by the single currency on the business cycles of member countries. It produces forecasts of gross domestic product (GDP) per capita of each euro member country, conditional on their per-EMU structure and the observed path of euro area-wide growth. This study finds that in the first ten years, business cycles have hardly changed. This finding has a remarkable implication. Countries that benefited from a large reduction in real interest rates after joining the euro, such as Italy, have not shown output growth rates that are significantly different from countries that have faced smaller idiosyncratic shocks, such as Germany or Belgium. The chapter also discusses whether the single currency has affected the euro area-wide business cycle. The introduction of the euro does not appear to have significantly changed the historical transatlantic linkages.

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