Is Europe Growing Together or Growing Apart?

36 Pages Posted: 21 Dec 2013

See all articles by Patrick M. Crowley

Patrick M. Crowley

Texas A&M University - Corpus Christi; Bank of Finland/Suomen Pankki

Enrique Garcia

Université Autonome Métropolitaine de Mexico

Chee-Heong Quah

University of Malaya

Date Written: December 18, 2013

Abstract

While it is painfully clear that the ’ever closer’ monetary and financial union in the EU has run into serious trouble there has been very little study of the degree to which the countries have become similar or different in their economic growth dynamics. This paper therefore goes beyond the traditional convergence literature to look at their dynamic convergence and explore the path of their changing similarity in the frequency domain. The results show that while a core group of countries may be developing together, there appears to be at least seven identifiable groups of countries with different growth dynamics. Greece appears to be in a class on its own. Business cycles are important but longer-term trends and higher frequency fluctuations all have a role to play in facilitating adjustment. These results provide awkward implications for policy, particularly for those who thought that simply having a union would draw countries closer together (endogenous OCA criteria).

Keywords: business cycles, growth cycles, frequency domain, wavelet analysis, cluster analysis, euro area, European Union, optimal currency area

JEL Classification: C49, E32

Suggested Citation

Crowley, Patrick M. and Garcia, Enrique and Quah, Chee-Heong, Is Europe Growing Together or Growing Apart? (December 18, 2013). Available at SSRN: https://ssrn.com/abstract=2369826 or http://dx.doi.org/10.2139/ssrn.2369826

Patrick M. Crowley (Contact Author)

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive, Unit #5808
Corpus Christi, TX 78412
United States

HOME PAGE: http://patrickmcrowley.com

Bank of Finland/Suomen Pankki ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Enrique Garcia

Université Autonome Métropolitaine de Mexico ( email )

Mexico

Chee-Heong Quah

University of Malaya ( email )

Kuala Lumpur, 50603
Malaysia

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