Business Cycle Synchronisation within the Euro Area: In Search of a "Euro Effect"

This paper studies business cycle synchronization and convergence in the euro area.  A set of stylized facts concerning the characteristics of the business cycle and synchronization in the euro area is derived.  It is analyzed whether convergence or divergence patterns between the euro area countries changed after the introduction of the euro.  In addition, a closer look is taken at the degree of business cycle synchronization between other countries and the euro area average.  Furthermore, a cluster analysis identifies clusters of countries within the euro area and an OECD sample sharing common business cycles, and a dynamic correlation analysis is carried out to broaden the scope of business cycle synchronization further.  We enrich the study with a frequency domain analysis and use the concepts of coherence, dynamic correlation, and phase.  Our main results are that coherence and dynamic correlation among the euro area countries, the United Kingdom, Japan, and the United States are fairly high.