Exploring CESEE-EMU Synchronisation Patterns

We study the degree of business cycle similarity between the Central and South-Eastern European (CESEE) countries and the Eurozone members. The special emphasis is put on the differences between countries that have already joined the European Union and those that are in different stages of integration. We introduce a specific measure of business cycle synchronisation by comparing the evolution of the growth rates in country pairs and further seek to identify determinants of these synchronisation patterns using pooled probit model. The results of the analysis have indicated that the real effective exchange rate seems to be an important predictor of synchronisation between CESSEE countries and the original Eurozone members. Our results have also indicated that trade becomes important synchronisation factor only for the countries that became EU members during the analysed period. The trade creation possibilities emerging from the common market seem to change the trade patterns in countries that became the EU members during the analysed period and contribute positively to the overall business synchronisation. This result seems encouraging for the EU aspiring countries.