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Trends and cycles in Euro area real GDP

[journal article]

Drake, Leigh; Mills, Terence C.

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Abstract This paper examines the time series properties of real GDP in the Euro area (EU 11), both prior to and after the adoption of the Euro in January 1999. We employ the relatively recent "optimal approximation" band pass filter developed by Christiano and Fitzgerald (2003) in order to identify a Euro-zone business cycle. We also utilise two alternative assumptions regarding the behaviour of the trend component of Euro area real GDP. The empirical results suggest that the single currency experiment appears to have reduced trend growth in the Euro zone, both ex-ante during the Maastricht nominal convergence phase, and also ex-post, during the period 2001Q1 to 2005Q4. With respect to cyclical behaviour, we identify a very robust measure of the Euro zone business cycle in the post 1994 period which does not appear to be sensitive to the particular assumption made regarding the trend rate of growth of real GDP. This type of result should facilitate a more accurate assessment of the extent to which individual countries and groups of countries are converged with respect to the Euro area business cycle.
Classification Political Economy
Free Keywords Euro Area; Business Cycle; Band Pass Filter
Document language English
Publication Year 2010
Page/Pages p. 1397-1401
Journal Applied Economics, 42 (2010) 11
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)