Measuring Synchronisation and Convergence of Business Cycles

This paper investigates business cycle relations among different economies in the Euro area. Cyclical dynamics are explicitly modelled as part of a time series model. We introduce mechanisms that allow for increasing or diminishing phase shifts and for time-varying association patterns in different cycles. Standard Kalman filter techniques are used to estimate the parameters simultaneously by maximum likelihood. The empirical illustrations are based on gross domestic product (GDP) series of seven European countries, which are compared with the GDP series of the Euro Area and that of the United States. The original integrated time series are band-pass filtered. We find that there is an increasing resemblance between the business cycle fluctuations of the European countries analysed and those of the Euro area, although with varying patterns